Quarterly Report • Nov 5, 2015
Quarterly Report
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Quarterly Report of SAF-HOLLAND S.A. as of September 30, 2015
| EUR million | Q1-Q3/2015 | Q1-Q3/2014 | Q3/2015 | Q3/2014 |
|---|---|---|---|---|
| Sales | 817.5 | 723.5 | 258.8 | 241.5 |
| Cost of sales | -658.6 | -587.5 | -208.6 | -196.3 |
| Gross profit | 158.9 | 136.0 | 50.2 | 45.2 |
| as a percentage of sales | 19.4 | 18.8 | 19.4 | 18.7 |
| Adjusted result for the period | 49.3 | 35.0 | 14.0 | 13.9 |
| as a percentage of sales | 6.0 | 4.8 | 5.4 | 5.8 |
| Undiluted adjusted EPS in EUR1) | 1.09 | 0.77 | 0.31 | 0.30 |
| Adjusted EBITDA | 84.8 | 65.4 | 28.0 | 22.4 |
| as a percentage of sales | 10.4 | 9.0 | 10.8 | 9.3 |
| Adjusted EBIT | 73.6 | 55.6 | 24.1 | 19.1 |
| as a percentage of sales | 9.0 | 7.7 | 9.3 | 7.9 |
| Operating cash flow2) | 43.7 | 21.4 | 28.8 | 6.4 |
1) Adjusted net result / weighted average number of ordinary shares outstanding as of the reporting day. 2) The operating cash flow is the cash flow from operating activities before income tax payments.
| EUR million | Q1-Q3/2015 | Q1-Q3/2014 | Q3/2015 | Q3/2014 |
|---|---|---|---|---|
| Europe | 394.8 | 379.7 | 123.6 | 118.5 |
| North America | 329.1 | 270.1 | 104.8 | 95.2 |
| Other | 93.6 | 73.7 | 30.4 | 27.8 |
| Total | 817.5 | 723.5 | 258.8 | 241.5 |
| EUR million | Q1-Q3/2015 | Q1-Q3/2014 | Q3/2015 | Q3/2014 |
|---|---|---|---|---|
| Trailer Systems | 471.9 | 414.1 | 145.2 | 133.3 |
| Powered Vehicle Systems | 139.3 | 122.9 | 44.5 | 44.0 |
| Aftermarket | 206.3 | 186.5 | 69.1 | 64.2 |
| Total | 817.5 | 723.5 | 258.8 | 241.5 |
| 09/30/2015 | 06/30/2015 | 03/31/2015 | 12/31/2014 | |
|---|---|---|---|---|
| Total assets (EUR million) | 691.1 | 713.6 | 724.7 | 645.2 |
| Equity ratio (%) | 39.3 | 38.1 | 38.3 | 38.5 |
| Q1-Q3/2015 | Q1-Q3/2014 | |||
| Employees (average) | 3,377 | 3,374 | ||
| Sales per employee (kEUR) | 242.1 | 214.5 |
Quarterly Report of SAF-HOLLAND S.A. as of September 30, 2015
006 SAF-HOLLAND on the Capital Market Summary of Share Price Development 006 Corporate Bonds Overview 009 Investor Relations and Capital Market Relationships 011
| 012 | Financial Position and Financial Performance | ||||
|---|---|---|---|---|---|
| General Framework Conditions 012 |
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| Overview of Business Development 013 |
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| Earnings Situation 015 |
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| Financial Situation 023 |
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| Assets 024 |
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| 026 | Opportunities and Risk Report |
026 Events after the Balance Sheet Date
026 Outlook
| 034 | Consolidated Statement of Comprehensive Income |
|---|---|
| 035 | Consolidated Balance Sheet |
| 036 | Consolidated Statement of Changes in Equity |
| 037 | Consolidated Cash Flow Statement |
| 038 | Notes to the Consolidated Interim Financial Statements |
The third quarter of this year was characterized by slowing economic growth. The weaker growth of the Chinese economy caused uncertainty in the capital markets. Important commercial vehicles markets such as Brazil, Russia and even Australia continue to show noticeably weaker development than expected at the beginning of the year. There are still no specific signs of improvement. The USA is already showing signs of the business normalization expected for the next year.
In September, the automotive and supplier industry also faced the scandal regarding manipulated emissions standards in a Volkswagen passenger car diesel motor. Without any real differentiation, the entire industry was initially deemed liable and penalized on the stock exchanges. The affair, now commonly referred to as "dieselgate", at times had a noticeable impact on our share price development, although SAF-HOLLAND exclusively equips commercial vehicles and does not produce any components for passenger cars or motors. Clarification was needed.
Despite this generally challenging environment, we are in line with planning. SAF-HOLLAND increased Group sales in the third quarter of 2015 over the already strong prior-year basis by 7.2% to EUR 258.8 million. Over the entire period of the first nine months of 2015, we achieved sales growth of 13.0% to EUR 817.5 million. The favorable development of the exchange rates, especially in terms of EUR/USD, contributed to this double digit sales growth. Organic sales growth accounted for 3.6%. Development of earnings was also pleasing. Adjusted EBIT in the first nine months of the year increased by 32.4% to EUR 73.6 million. The adjusted EBIT margin improved by 130 base points to 9.0%. In the third quarter, adjusted EBIT reached EUR 24.1 million and thus exceeded the comparable figure from the previous year by EUR 5.0 million or 26.2%. Accordingly, the adjusted EBIT margin was, in both the third quarter as well as on a nine-month basis, within the target corridor we had set of 9 to 10%, although at the lower end.
The driving force behind the solid earnings development were, in addition to our efficiency enhancements in production, positive product mix effects and the successes of our package of measures to improve profitability in the Trailer Systems Business Unit. With the conclusion of the German plant consolidation at the Bessenbach location at the end of September, we were able to successfully complete a key project in the package of measures on time. On behalf of the entire Management Board, I would like to express our thanks to all parties involved for this achievement. We will now tackle the job of optimizing the production processes in Plant 1 in Bessenbach and to more intensively network them. The objective is to achieve further productivity growth and, in the end, to generate cost advantages.
We are also making progress with the implementation of our growth strategy 2020 which was introduced in May 2015 and the planned expansion into new regional markets that is part of this strategy. In the third quarter, we began preparations for the founding of a sales office as well as branches in Kenya and Morocco.
For the strategy 2020, we are also positioning ourselves in terms of financing. Beyond the organic growth of the Group, we also want to grow through targeted cooperations and acquisitions which will enable a faster market entry and a stronger market positioning in those markets with disproportionately high growth over the long term, i.e. the BRIC countries and NEXT-11. For the planned growth course, we are putting tremendous importance on timely
Detlef Borghardt, Chief Executive Officer (CEO)
hedging that is geared toward the long term. The interest situation remains favorable for this approach. With this in mind, we reached agreement in October with a reduced bank consortium on a new syndicated loan which will replace the current line of financing. Also in October, we commissioned a bank consortium with the marketing of a bonded loan with a nominal value of EUR 125 million and a staggered term of five to ten years.
The generally successful course of business in the first three quarters of 2015 leads to a solid basis for the remaining months of financial year 2015. Despite the difficult situation in a number of markets and slowing momentum on the US market, we expect that we will be able to meet the planned targets for the year.
On behalf of my colleagues on the Management Board and the Board of Directors, I thank all customers, suppliers, business partners, employee representatives and employees for their good work and successful cooperation. Our thanks also go out to our shareholders and bondholders for the confidence they have placed in the company and the often many years of loyalty they have demonstrated.
Sincerely,
Detlef Borghardt Chief Executive Officer (CEO)
| inspired by PASSION | |
|---|---|
Investor nervousness intensified over the summer months of 2015 on the international stock exchanges as well as on the German stock market. This was caused by increasing concern regarding continued economic growth in China, the government debt issue in Greece and uncertainty in connection with the upcoming increase in the prime interest rate from the US Federal Reserve Bank. This is in addition to the scandal at the end of the third quarter related to manipulated emission values for Volkswagen diesel motors of passenger cars which in turn led to substantial drops in the price of many stocks in the automotive and component supplier industry which insecure investors associated with the issue. The SAF-HOLLAND share was also impacted although, as a supplier for the commercial vehicles industry, the company does not supply any parts for the automotive industry and does not produce components for motors.
The leading German index DAX experienced a turbulent third quarter and, in the end, recorded severe losses. The spectrum ranged from 11,736 to 9,428 points. Over the course of the entire quarter, the index declined by 11.7% and closed at 9,660 points on September 30, 2015. It was thus 1.5% below the figure for the end of 2014. Development on the comparative index SDAX was noticeably better. At the end of the quarter on September 30, 2015, it closed with 8,310 points, thus recording an increase of 15.6% as compared to the 2014 year end closing price. Most automotive suppliers and many mechanical engineering titles, on the other hand, were noticeably weaker than the SDAX.
The SAF-HOLLAND share initially continued the upward trend that it began in June, reaching a high of over EUR 15.00 in July 2015. Despite quarterly results that were once again above expectations, the share price paid tribute to the weak overall market and, in particular, the weak development of the sector and dropped back by the end of September to a level of EUR 11.78. With the closing price of EUR 11.78 in the third quarter of 2015, SAF-HOLLAND shareholders were nevertheless able to enjoy a share price increase of 20.6% as compared to the closing price from the third quarter of 2014 (EUR 9.77). Compared to the closing price at the end of the year 2014, this corresponds to an increase of 6.1%.
On the basis of the closing price from September 30, 2015 and the 45,361,112 shares issued, the market capitalization of SAF-HOLLAND amounted to EUR 534 million – an increase of approximately 21% as compared to the prior-year figure of EUR 443 million.
As compared to the first nine months of 2014, there was a marked improvement in the liquidity in the share – a key investment criteria for large institutional investors. The average daily traded volume increased by 83.4% to EUR 3.1 million as compared to EUR 1.7 million in the same period of the previous year.
SAF-HOLLAND on the Capital Market
Source: Commerzbank AG, Frankfurt am Main.
Our company's shares are broadly held. Shareholders consist primarily of institutional investors such as banks, insurance companies and asset managers as well as private investors from Germany and abroad. Among the larger shareholders with extensive contingents are, in addition to German investment companies, mainly investment trusts from the United Kingdom, France, Scandinavia, the Benelux countries and, to an increasing extent, from the United States. More than 5% of the shares in SAF-HOLLAND S.A. are held by funds from Deutsche Bank AG with a stake of 5.3% as well as by Franklin Templeton Investment Management Limited with 5.2%. There are about a dozen further international investment companies with stakes of between 2% and 5%.
By the end of the reporting quarter, members of the Management Board and the Board of Directors of SAF-HOLLAND owned 1.6% of the shares of the company (previous year: 3.3%). In a year-on-year comparison it should be considered, however, that following the Annual General Meeting on April 23, 2015 Richard Muzzy resigned from the Board of Directors at SAF-HOLLAND S.A. and Ulrich Otto Sauer resigned from the Supervisory Board at SAF-HOLLAND GmbH. Their share holdings will no longer be included in the calculation of shares belonging to the Board of Directors and the Management Board.
As of September 30, 2015
007
The SAF-HOLLAND share is currently analyzed by 11 banks and financial service providers. Others are preparing to begin their coverage. At the time of the publication of the financial report on the third quarter of 2015, eight of eleven analysts gave the share a buy recommendation or expect a better share price development than the overall market while there was one "hold" recommendation. The price targets varied between EUR 13.70 and EUR 20.00.
| CURRENT ANALYSTS RECOMMENDATIONS | ||
|---|---|---|
| Deutsche Bank AG | buy | |
| Kepler Cheuvreux | buy | |
| Exane BNP Paribas | outperform | |
| Bankhaus Lampe KG | buy | |
| Commerzbank AG | hold | |
| equinet Bank AG | buy | |
| Hauck & Aufhäuser Institutional Research AG | buy | |
| ODDO SEYDLER BANK AG | buy | |
| Macquarie Capital Ltd. | outperform | |
| quirin bank AG | buy | |
| Montega AG | buy |
| Number of shares | 45,361,112 shares | |
|---|---|---|
| Designated Sponsors | Commerzbank AG, ODDO SEYDLER BANK AG, Kepler Cheuvreux | |
| Daily high/low in the reporting period1) |
EUR 15.77 / EUR 11.06 | |
| Quarterly closing price1) | EUR 11.78 | |
| Market capitalization at the end of the third quarter2) |
EUR 534.4 milion | |
| Undiluted adjusted earnings per share2) |
EUR 1.09 | |
1) XETRA closing price. 2) Based on the weighted average number of shares outstanding in the period under review.
SAF-HOLLAND on the Capital Market
In addition to its share, SAF-HOLLAND is also present on the capital market with a corporate bond and convertible bonds. They offer private and institutional investors an attractive and high-yield alternative in times of continuously low interest rates.
SAF-HOLLAND has a credit rating in the investment grade range of BBB, outlook stable. Following a further comprehensive analysis, rating agency Euler Hermes confirmed its previous year's rating on April 7, 2015. In their twelve-month forecast, analysts predict a continued stable company development for our company.
The SAF-HOLLAND corporate bond is listed on the Prime Standard for corporate bonds on the Frankfurt Stock Exchange. The quotation in this premium segment offers investors a high degree of transparency and a good tradability of the bond.
In the current year, the bond was consistently quoted above the level of 110%. At the end of the reporting quarter it fell back slightly. This was primarily due to the Volkswagen emission scandal which, beyond the stock market, also impacted corporate bonds from the automotive industry. Against this backdrop, the corporate bond from SAF-HOLLAND closed out the reporting quarter on September 30, 2015 with a closing price for the day of 107.0% (previous year: 113.0%).
Source: IKB Deutsche Industriebank AG, Düsseldorf.
| KEY FIGURES FOR THE CORPORATE BOND | ||
|---|---|---|
| WKN | A1HA97 | |
| ISIN | DE000A1HA979 | |
| Volume | EUR 75.0 million | |
| Denomination | EUR 1,000 | |
| Coupon | 7.00% p.a. | |
| Interest date | April 26 | |
| Term | 5.5 years | |
| Maturity | April 26, 2018 | |
| Bond segment | Prime Standard | |
| Stock exchange | Frankfurt | |
| Status | Not subordinated | |
| Company rating | BBB, stable outlook (Euler Hermes) | |
| Quarterly closing price1) | 107.0% | 1) Source: IKB Deutsche |
Industriebank AG, Düsseldorf.
The convertible bonds issued by SAF-HOLLAND in September 2014 have been listed into the OTC trade of the Frankfurt Stock Exchange.
On September 30, 2015 the price of our convertible bonds was 113.7%. It was thus 6.2% above the listing of 107.5% at the end of 2014.
Source: IKB Deutsche Industriebank AG, Düsseldorf. SAF-HOLLAND on the Capital Market
| WKN | A1ZN7J |
|---|---|
| ISIN | DE000A1ZN7J4 |
| Volume | EUR 100.2 million |
| Denomination | EUR 100,000 |
| Coupon | 1.00% p.a. |
| Method of payment | Semi-annual |
| Term | 6 years |
| Maturity | September 12, 2020 |
| Status | Unsubordinated and unsecured |
| Conversion price | EUR 12.33 per share |
| Conversion premium | 20% above reference price |
| Conversion ratio | 8.110,8921 per bond |
| Dividend protection | Up to EUR 0.27 per share annually |
| Stock exchange | Over the counter market of the Frankfurt Stock Exchange |
| Quarterly closing price1) | 113.7% |
1) Source: IKB Deutsche Industriebank AG, Düsseldorf.
In the first nine months of 2015, the Management Board and IR Team conducted numerous individual and group discussions with investors and analysts on business development, technology trends and the future prospects of our company in the course of the current implementation of the growth strategy 2020.
In addition to participation in 18 international capital market conferences in locations which included Munich, Baden-Baden, London, Paris, Berlin, New York and Boston, we also held road shows in Munich, Hamburg, Finland and Denmark. A comprehensive North America road show also met with a pleasingly high level of interest and, for the first time, also included Canada and investors from the Mid-West of the USA.
With a view to the increasing international positioning of the group of companies in the course of the strategy 2020, SAF-HOLLAND will intensify its investor relations efforts, primarily on the international stage. A particular focus is on North America. But also in China and Australia, where the company enjoys a high level of awareness with its brand, road shows and/or participation in capital market conferences are planned.
The SAF-HOLLAND Capital Markets Day 2015 for financial analysts and investors is expected to take place on December 9. In addition to the key items on the event agenda, we will also be taking a look at the objectives and initiatives for implementation of the growth strategy 2020, among other things. Furthermore, any interested participants will be given the opportunity to visit the expanded Plant 1 in Bessenbach following the successfully completed consolidation of the German plants.
Our SAF-HOLLAND Investor Relations website provides detailed current information on the share as well as on the corporate bond and the convertible bonds. In addition to key figures and current financial news, it also offers reports, presentations and recordings of telephone conferences for download: http://corporate.safholland.com/en/investoren.html. In the first quarter of 2016, SAF-HOLLAND will then launch a fully revised and, in terms of the range of information offered and design, a significantly optimized Investor Relations offering.
The economic outlook for global production dampened in the middle of the year. In adapting to this development, the International Monetary Fund (IMF) reduced its growth outlook for the global economy based on 2015 at the beginning of July by 0.2 percentage points to 3.3%.
In the advanced economies, development benefited in the third quarter of 2015 from the expansive monetary policy and impetus generated by the lower oil price. In the euro countries, export strengthening currency relations also had a positive impact.
The Institute for World Economy (IfW) calculates that the gross domestic product (GDP) in the euro zone from July to September increased as compared to the prior quarter by 0.4%. Industrial production in the reform countries, in particular, increased noticeably. In Germany, GDP in the third quarter of 2015 is likely to have increased by 0.4%.
In the United States, too, the economy continued to move upward. This confirms assumptions that the economic weaknesses seen at the beginning of the year were merely a short term effect. Although the USA, following the general decrease in the oil price is investing less in the production of crude oil, the GDP should expand by 2% in the second half of the year.
In the emerging countries the economy was slowed in the reporting period by lower export revenues as a result of falling raw materials prices, but also due to structural and domestic economic difficulties. In Brazil, for example, declining economic output is anticipated for the current year. The same applies for Russia, where the economic environment worsened again in the third quarter. For China, too, economic climate indicators point to a weakening of economic output. The difficulties the country is experiencing in the transition to sustainable growth could, in the view of the IfW, also have an impact on other national economies in Asia.
As is the case with the overall economy, the global commercial vehicles markets also presented a very inconsistent image in the third quarter of 2015.
In the European Union, the market for trucks and trailers showed upward tendencies again. Overall, in the EU countries a total of 1.5 million commercial vehicles were newly registered from January to September. This corresponds to an increase of 12.2% as compared to the prior year period. According to the industry association ACEA, it was primarily those vehicle classes that are relevant for SAF-HOLLAND that recorded the strongest growth. In the segment for heavy trucks over 16 tons, 20.6% more units were newly registered than in the same period of the previous year.
Financial Position and Financial Performance
By contrast, development of the North American truck market in the third quarter was inconsistent. For medium-duty trucks in the classes 6 and 7 as well as for the heavy truck segment, order volumes initially continued to increase in July. In August, the market softened and orders remained below the comparative figures from the same month in the previous year. Not least as a result of plant vacations, August is traditionally one of the weaker months for orders of class 8 trucks. In addition, many orders were already placed in the prior months, as pointed out by the market research institute ACT Research, emphasizing the high order backlog of original equipment manufacturers.
The North American trailer market recorded increasing demand in the reporting period. Following a very strong order month in June, orders in July increased by 7% as compared to the relevant month in the previous year. In August, orders almost exactly met the order volume of August 2014. Market experts point out that volumes for trucks and trailers which are specifically designed for the fracking segment could still be slowed by decreasing fracking activities. Due to the decline in crude oil prices, the United States has reduced its shale oil production considerably.
Development in a number of markets in emerging countries was again extremely weak. In Brazil, for example, 43.9% fewer trucks were registered for the first time from the beginning of January to the end of September than in the same period of 2014. All commercial vehicle segments which are relevant for SAF-HOLLAND recorded significant decreases. For heavy trucks over 15 tons, new registrations in the first nine months declined by 60.3%.
The Russian commercial vehicles market was also once again clearly in minus. From January to the end of July, 21.1% fewer trucks were produced as compared to the same period of the previous year.
In China, a total of 2.5 million commercial vehicles rolled off the assembly lines in the first nine months of the current year. Commercial vehicles production figures thus fell by 12.5% as compared to the same period in the previous year. According to the Chinese manufacturer's association CAAM, the decrease was primarily accounted for in the truck segment. In the bus segment, production was at roughly the same level as in the previous year.
At the end of September, and thus earlier than originally planned, the relocation of the German plant in Wörth to the two plants at the main location in Bessenbach was successfully completed. Over the course of several stages since the end of 2013, SAF-HOLLAND completely transferred the plant in Wörth to the two plants in Bessenbach, which were modernized and expanded for this purpose.
The consolidation of the German production plant network is among the focuses of our activities to optimize earnings in the Trailer Systems Business Unit. The goal of the package of measures that was launched two years ago is to increase the adjusted EBIT margin of the Business Unit to about 6% by the end of 2015. Implementation of the package of measures, which consists of a broad range of individual initiatives, is already having an impact. Trailer Systems shows an adjusted EBIT margin of more than 6% for both the second as well as for the third quarter 2015.
__ Process optimizations after plant consolidation offer further cost reduction potential The completion of the German plant consolidation paves the way for greater flexibility in the production at the Bessenbach location. Plant I at the location now covers the entire value chain. By means of various detail projects, the individual production processes can now be more precisely coordinated. This provides a number of advantages, including in particular enhanced productivity and additional improved delivery times. Our initiatives in this regard will also lead to cost advantages.
Activities for the sale of the property in Wörth are also underway. At the same time, negotiations began on the purchase of an area in Bessenbach where, primarily, a location for the Aftermarket Business Unit will be built.
In terms of the plant consolidation in North America, further steps have been decided which call for the sale of the AerWay aeration and ventilation systems for tillage business – a peripheral business which has been maintained since the merger of SAF and Holland in 2007 and which is not part of the core business of SAF-HOLLAND and only marginally contributed to Group sales. The activities associated with the sale have been initiated and are planned to be implemented by the end of the year.
014
Financial Position and Financial Performance
A cornerstone of our growth strategy 2020 is the expansion of business activities to new markets. Among the various associated initiatives is also the establishment of further sales offices. In the third quarter, SAF-HOLLAND began preparations for the founding of an office in Morocco and one in Kenya. Morocco is increasingly positioning itself as a trade hub between the European and African continents as well as North and South America. In the World Bank's Logistics Performance Index (LPI), the country is already ranked 62nd. Kenya, which is in 89th place in the LPI ranking, benefits from its favorable geographical location in East Africa. The country can also point to positive economic data: with a gross domestic product of more than USD 55 billion, Kenya is viewed as the strongest economy within the East African Community.
In July, our plant in Holland, Michigan, was presented with the renowned Quality Award from American manufacturer PACCAR. The award is tied to a strict set of conditions. In addition to compliance with demanding quality standards, these also include criteria such as the degree of innovation of the products or the punctuality of deliveries. Furthermore, quality systems must meet the demands of ISO/TS 16949 and ISO 9001. Under the brands Kenworth, Peterbilt and DAF, PACCAR manufactures lightweight, midrange and heavy trucks. SAF-HOLLAND supplies the truck manufacturer with fifth wheels and suspension systems, among other things.
From January to September 2015, SAF-HOLLAND generated Group sales of EUR 817.5 million (previous year: EUR 723.5 million). Despite weakness in the Russian, Brazilian and Australian markets, sales increased by EUR 94.0 million, or 13.0%, compared with the same period in the previous year. As a result of currency translation, exchange rate developments had a positive impact. The development of the exchange rate of the US dollar against the Euro played a key role. Adjusted for exchange rate effects, Group sales increased by 3.6% to EUR 749.5 million in the first nine months of 2015.
CURRENCIES: DEVELOPMENT OF THE US DOLLAR AND THE CANADIAN DOLLAR AGAINST THE EURO (Q1-Q3/2015)1)
| North America | |
|---|---|
| US dollar | +21.6% |
| Canadian dollar | +5.7% |
1) Average rates Q1-Q3/2015 vs. Q1-Q3/2014.
In the third quarter of 2015, Group sales increased by 7.2% to EUR 258.8 million (previous year: EUR 241.5 million). All SAF-HOLLAND business segments contributed to the sales growth.
Following sales increases of 15.2% in the first quarter and 16.6% in the second quarter of 2015, SAF-HOLLAND recorded a growth rate of 7.2% in the reporting quarter. This is attributable both to the decreased contribution from foreign currency translation, and to the unusually high comparable basis of the previous year. Generally, the third quarter is seasonally weaker as a result of August vacations at numerous manufacturers. However, substantial project orders for specialty vehicles, existing work for the government and large individual orders from some fleet operators had a positive effect, particularly on the US market in comparison with the
same quarter in 2014 and ensured unusually strong sales development. Looking at the entire period from January to September 2015, the growth rate continues to be stable: with a value of 13.0% (previous year: 10.5%) the growth rate increased by 250 base points in 2015 compared with the first nine months of 2014.
| EUR million | Q1-Q3/2015 | Q1-Q3/2014 | ||
|---|---|---|---|---|
| Europe | 394.8 | 48.3% | 379.7 | 52.5% |
| North America | 329.1 | 40.3% | 270.1 | 37.3% |
| Other | 93.6 | 11.4% | 73.7 | 10.2% |
| Total | 817.5 | 100% | 723.5 | 100% |
| EUR million | Q3/2015 | Q3/2014 | |||
|---|---|---|---|---|---|
| Europe | 123.6 | 47.8% | 118.5 | 49.1% | |
| North America | 104.8 | 40.5% | 95.2 | 39.4% | |
| Other | 30.4 | 11.7% | 27.8 | 11.5% | |
| Total | 258.8 | 100% | 241.5 | 100% |
In Europe, SAF-HOLLAND increased sales in the first nine months of 2015 by 4.0% to EUR 394.8 million (previous year: EUR 379.7 million). This means that 48.3% (previous year: 52.5%) of Group sales were recorded in this region. The third quarter of 2015 showed positive development in terms of sales despite the high comparable basis of the previous year. Between July and September 2015, sales of EUR 123.6 million (previous year: EUR 118.5 million) were recorded. This represents a growth of 4.3% in comparison with the third quarter of the previous year.
The increase in demand as a result of the economic upswing, particularly in Southern European countries such as Spain, Portugal and Italy, contributed to the positive sales development. As previously, the difficult market situation in Russia had a dampening effect and also impacted other national markets such as those in the Scandinavian region. As a sales market for used vehicles, Russia has to a great extent broken down. European fleet operators have therefore kept used trucks and trailers, which are ready for sale, longer than planned.
In North America, the need for new vehicles resulting from pent-up demand for investments has normalized following record levels. In general, SAF-HOLLAND recorded a solid demand in the first nine months of 2015.
The expansion of the spare parts business suffered as a result of the fact that a large proportion of new vehicles are in operation in North America following strong market growth in recent months. Furthermore, an expansion of the aftermarket business volume in this region is currently only possible to a limited extent. Trucks and trailers are generally first inspected after approximately twelve months. Over a period of one to two years, the increased vehicle stock will have a noticeably positive effect on our spare parts business.
Financial Position and Financial Performance
Overall, SAF-HOLLAND increased sales in North America in the first nine months of 2015 to EUR 329.1 million (previous year: EUR 270.1 million). The share of Group sales thereby increased to 40.3% (previous year: 37.3%). Sales growth of 21.8% benefited noticeably from the development of the euro-dollar exchange rate. Adjusted for exchange rate effects, sales in the North America region were at EUR 270.7 million, slightly above the level of the previous year. In the third quarter of 2015, SAF-HOLLAND increased sales in the region by 10.1% to EUR 104.8 million (previous year: EUR 95.2 million). This takes into account the fact that the third quarter is generally seasonally weaker as a result of the annual vacation plant closings in the summer months, and that the third quarter of 2014 recorded an unusually high sales level as a result of large individual orders by several fleet operators. The usual seasonal sales decrease from the second to the third quarter was barely noticeable in 2014. The advantageous product mix of the first half of the year, with a high share of air suspension systems and applications for commercial specialty vehicles shifted towards more standard applications in the third quarter. Furthermore, no government business has been recorded so far in 2015.
In the regions outside of the core markets of Europe and North America, SAF-HOLLAND achieved sales of EUR 93.6 million between January and September (previous year: EUR 73.7 million), an increase of 27.0% compared with the same period in the previous year. In the first nine months of 2015, 11.4% of Group sales were generated in these markets (previous year: 10.2%). In the third quarter of 2015, sales increased despite the economic downturn in some emerging markets by 9.4% to EUR 30.4 million (previous year: EUR 27.8 million).
At the Chinese location in Xiamen, where SAF-HOLLAND has been active since 2009, the expansion of the product program has proven effective at meeting the requirements in emerging markets for particularly cost-efficient standard applications. Since 2014 these axles have also been supplied to vehicle manufacturers in the Middle East and South East Asia. The first deliveries to India began in the reporting period. The positive development of our activities in China is less linked to high economic growth rates. SAF-HOLLAND is primarily growing in the Asian country through the expansion of market shares and manufacturing for export. Through the subsidiary Corpco, which has its headquarters in Beijing and production site in Baotou, the company is also positioned with air suspension systems for electric and intercity buses and in future also for trucks in interesting technological growth niches.
We recorded prolonged positive sales development in Mexico and South America. The Parts Distribution Center in Mexico and the sales offices in Colombia, Peru and Argentina, established in 2013, were once again strategic success factors.
In Brazil and Australia, on the other hand, sales continued to develop weakly as a result of the extremely difficult market situation. New purchases by our customers were postponed in both national markets. If fleet operators begin to reduce pent-up demand for investment, then significant sales stimulus could be created in the future – just as in North America recently, and currently in Europe. In Brazil, since the third quarter, SAF-HOLLAND has been delivering significantly larger quantities to a leading trailer manufacturer which has terminated its own axle production. Progress was also made in the South American country on the cost side, where our optimizations are increasingly leading to improvements in earnings.
INCOME STATEMENT
| Eur milion | Q1-Q3/2015 | Q1-Q3/2014 | Q3/2015 | Q3/2014 |
|---|---|---|---|---|
| Sales | 817.5 | 723.5 | 258.8 | 241.5 |
| Cost of sales | -658.6 | -587.5 | -208.6 | -196.3 |
| Gross profit | 158.9 | 136.0 | 50.2 | 45.2 |
| in % of sales | 19.4 | 18.8 | 19.4 | 18.7 |
| Other income | 1.2 | 0.8 | 0.3 | 0.5 |
| Selling expenses | -45.4 | -42.8 | -14.4 | -14.3 |
| Administrative expenses | -35.2 | -32.5 | -11.0 | -10.7 |
| Research and development costs | -14.8 | -14.7 | -4.1 | -4.9 |
| Operating result | 64.7 | 46.8 | 21.0 | 15.8 |
| in % of sales | 7.9 | 6.5 | 8.1 | 6.5 |
| Finance result | -2.5 | -5.1 | -3.9 | 0.9 |
| Share of net profit of investments accounted for using the equity method | 1.0 | 0.9 | 0.2 | 0.5 |
| Result before tax | 63.2 | 42.6 | 17.3 | 17.2 |
| in % of sales | 7.7 | 5.9 | 6.7 | 7.1 |
| Income tax | -21.1 | -13.9 | -5.6 | -6.0 |
| Result for the period | 42.1 | 28.7 | 11.7 | 11.2 |
| in % of sales | 5.1 | 4.0 | 4.5 | 4.6 |
| Number of shares1) | 45,361,112 | 45,361,112 | 45,361,112 | 45,361,112 |
| Undiluted earnings per share in EUR | 0.93 | 0.63 | 0.26 | 0.24 |
| Diluted earnings per share in EUR | 0.80 | 2) 0.63 3) |
0.22 4) |
0.24 3) |
1) Weighted average number of ordinary shares.
2) Calculation with consideration of 8,107,497 share equivalents and EUR
0.9 million earnings contribution for the convertible bonds issued in 2014. 3) Calculation with consideration of
562,490 share equivalents and EUR 0.1 million earnings contribution for the convertible bonds issued in 2014.
4) Calculation with consideration of 8,107,497 share equivalents and EUR
0.4 million earnings contribution for the convertible bonds issued in 2014.
The expansion of the sales volume was accompanied by increased efficiency in production, savings effects from the plant consolidation in Germany, as well as beneficial product mix effects which were particularly positive in the first half of the year. In combination, this allowed for better development of gross profit as compared with sales growth.
Gross profit in the Group thereby increased by 16.8% to EUR 158.9 million between January and September (previous year: EUR 136.0 million). The gross margin increased by 60 base points to 19.4% (previous year: 18.8%). Despite the seasonally weaker sales dynamic in the third quarter, the gross margin again reached the high value of 19.4%.
Financial Position and Financial Performance
The significant cost categories increased nominally as a result of the sales increase and the exchange rate effects. The stringent Group-wide cost discipline, however, led to a consistent improvement in the expense ratios. Selling expenses thus increased to a total of EUR 45.4 million in the first nine months of 2015 (previous year: EUR 42.8 million). The selling expenses' share of Group sales were, however, reduced to 5.6% of Group sales (previous year: 5.9%). General administrative costs increased to EUR 35.2 million (previous year: EUR 32.5 million), but as a percentage of sales decreased to 4.3% (previous year: 4.5%). The Group spent EUR 14.8 million on research and development, with a focus on weight reduction, the development of new approaches to braking technology and for applications in suspension systems (previous year: EUR 14.7 million). Before accounting for capitalized development costs, the research and development ratio was 1.8% (previous year: 2.0%).
In terms of operating results, in the first nine months of 2015 SAF-HOLLAND recorded disproportionately high growth of 38.2% to EUR 64.7 million (previous year: EUR 46.8 million). In the third quarter, the operating result also increased at a higher percentage rate than sales, growing by 32.9% to EUR 21.0 million (previous year: EUR 15.8 million).
The finance result improved in the first nine months of 2015 to EUR -2.5 million (previous year: EUR -5.1 million). The net interest expense from interest bearing loans and bonds was reduced by EUR 0.8 million, while financial income from unrealized and realized exchange rate gains, which result from the valuation of intercompany foreign currency loans and dividends at the reporting date, were EUR 0.6 million higher than in the comparable period in the previous year. The interest expense includes non-cash expenses in the amount of EUR 0.5 million from the imputed interest component for the current convertible bonds.
In the third quarter of 2015, the finance result was noticeably weaker than in the same quarter of the previous year. This is largely a result of the unusually high foreign exchange gains in the third quarter of the previous year from the valuation of inter-company foreign currency loans and dividends in the net amount of EUR 4.8 million, compared with net foreign exchange losses of EUR 0.4 million in the third quarter of the current financial year. Overall, in the third quarter of 2015 negative earnings of EUR -3.9 million were recorded (previous year: EUR 0.9 million), EUR 4.8 million lower than in the previous year, which includes the one-time dissolution of transaction costs of EUR 0.5 million, to be considered in connection with the refinancing of bank credit lines.
Earnings before taxes thus reached EUR 63.2 million in the first nine months of 2015 (previous year: EUR 42.6 million), outperforming the previous year by 48.4%. The result for the period increased by 46.7% to EUR 42.1 million (previous year: EUR 28.7 million). Based on an unchanged figure of 45.4 million issued ordinary shares, this results in undiluted earnings per share of EUR 0.93 (previous year: EUR 0.63). Taking into consideration the impact on profit and loss as well as the share equivalents for the convertible bonds issued in 2014, this results in diluted earnings per share of EUR 0.80 (previous year: EUR 0.63).
The significantly weaker, exchange-rate related financial result led to earnings before taxes of EUR 17.3 million (previous year: EUR 17.2 million) in the third quarter of 2015. The result for the period in the same timeframe developed similarly, reaching EUR 11.7 million (previous year: EUR 11.2 million).
| RECONCILIATION OF ADJUSTED EARNINGS FIGURES | |||
|---|---|---|---|
| --------------------------------------------- | -- | -- | -- |
| Q1-Q3/2015 | Q1-Q3/2014 | Q3/2015 | Q3/2014 |
|---|---|---|---|
| 42.1 | 28.7 | 11.7 | 11.2 |
| 21.1 | 13.9 | 5.6 | 6.0 |
| 2.5 | 2) 5.1 |
3.9 | -0.9 |
| 4.9 | 4.5 | 1.7 | 1.5 |
| 3.0 | 3.4 3) |
1.2 | 1.3 |
| 73.6 | 55.6 | 24.1 | 19.1 |
| 9.0 | 7.7 | 9.3 | 7.9 |
| 11.2 | 9.8 | 3.9 | 3.3 |
| 84.8 | 65.4 | 28.0 | 22.4 |
| 10.4 | 9.0 | 10.8 | 9.3 |
| -11.2 | -9.8 | -3.9 | -3.3 |
| -2.5 | -5.1 2) |
-3.9 | 0.9 |
| 71.1 | 50.5 | 20.2 | 20.0 |
| -21.8 | -15.5 | -6.2 | -6.1 |
| 49.3 | 35.0 5) |
14.0 | 13.9 |
| 6.0 | 4.8 | 5.4 | 5.8 |
| 45,361,112 | 45,361,112 | 45,361,112 | 45,361,112 |
| 1.09 | 0.77 | 0.31 | 0.31 |
| 1) 1) 4) |
1) The finance result includes EUR 5.0 million of unrealized foreign currency exchange gains from the valuation of inter-company foreign currency loans at the closing rate. 2) The finance result includes EUR 5.5 million of unrealized foreign currency exchange gains from the valuation of inter-company foreign currency loans at the closing rate. 3) Restructuring and integration costs include aperiodic expenses of kEUR 220.0. 4) When calculating the adjusted result for the period, a uniform tax rate of 30.60% was assumed. 5) When calculating the adjusted result for the period, a uniform tax rate of 30.70% was assumed. 6) Weighted average number of ordinary shares.
7) Adjusted earnings per share include minority results in the amount of EUR 0.1 million (previous year: EUR -0.1 million).
In the reporting period, SAF-HOLLAND increased EBIT adjusted for negative effects from the purchase price allocation as well as restructuring costs by almost one third to EUR 73.6 million (previous year: EUR 55.6 million). Compared with the same period in the previous year, the EBIT margin adjusted for one-time effects for the first nine months of 2015 increased by 130 base points to 9.0% (previous year: 7.7%) and was thereby at the lower end of the target corridor of 9 to 10%.
Despite the seasonally weakened sales development in the third quarter of 2015, the Group was able to keep the margin at a good level also in this period. In the third quarter of 2015, the EBIT adjusted for purchase price allocations of EUR 1.7 million (previous year: EUR 1.5 million) as well as restructuring costs of EUR 1.2 million (previous year: EUR 1.3 million) reached EUR 24.1 million (previous year: EUR 19.1 million). This corresponds to an adjusted EBIT margin of 9.3% (previous year: 7.9%).
The restructuring costs, resulting primarily from the plant consolidation in Germany, were EUR 3.0 million after nine months (previous year: EUR 3.4 million).
Adjusted earnings before taxes increased between January and September 2015 by 40.8% to EUR 71.1 million (previous year: EUR 50.5 million). In the same timeframe, the adjusted result for the period increased by 40.9% to EUR 49.3 million (previous year: EUR 35.0 million). The adjusted undiluted earnings per share thus increased to EUR 1.09 (previous year: EUR 0.77), with an unchanged number of shares at 45.4 million. The adjusted diluted earnings per share – taking into consideration effects on profit and loss and the share equivalents of the convertible bonds issued in 2014 – stood at EUR 0.94 (previous year: EUR 0.76).
In the third quarter, adjusted earnings before taxes did not increase as strongly due to the currency related development of the finance result as described above with a moderate gain resulting in EUR 20.2 million (previous year: EUR 20.0 million). The adjusted result for the period between July and September 2015 also increased slightly to EUR 14.0 million (previous year: EUR 13.9 million). The adjusted undiluted earnings per share thus stood at EUR 0.31 (previous year: EUR 0.31). Adjusted diluted earnings per share amounted to EUR 0.27 (previous year: EUR 0.30).
Financial Position and Financial Performance
PERFORMANCE BY BUSINESS UNIT
| Trailer Systems Business Unit |
Powered Vehicle Systems Business Unit |
Aftermarket Business Unit |
Adjustments / eliminations |
Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| EUR million | Q1-Q3 2015 |
Q1-Q3 2014 |
Q1-Q3 2015 |
Q1-Q3 2014 |
Q1-Q3 2015 |
Q1-Q3 2014 |
Q1-Q3 2015 |
Q1-Q3 2014 |
Q1-Q3 2015 |
Q1-Q3 2014 |
| Sales | 471.9 | 414.1 | 139.3 | 122.9 | 206.3 | 186.5 | – | – | 817.5 | 723.5 |
| Cost of sales | -417.8 | -373.9 | -116.1 | -101.9 | -148.4 | -132.4 | 23.7 | 20.7 | -658.6 | -587.5 |
| Gross profit | 54.1 | 40.2 | 23.2 | 21.0 | 57.9 | 54.1 | 23.7 | 20.7 | 158.9 | 136.0 |
| in % of sales | 11.5 | 9.7 | 16.7 | 17.1 | 28.1 | 29.0 | – | – | 19.4 | 18.8 |
| Other operating income and expense |
-23.7 | -23.0 | -12.7 | -12.9 | -25.2 | -23.8 | -23.7 | -20.7 | -85.3 | -80.4 |
| Adjusted EBIT | 30.4 | 17.2 | 10.5 | 8.1 | 32.7 | 30.3 | – | – | 73.6 | 55.6 |
| in % of sales | 6.5 | 4.2 | 7.5 | 6.6 | 15.8 | 16.2 | – | – | 9.0 | 7.7 |
The Trailer Systems Business Unit, SAF-HOLLAND'S largest segment, achieved sales of EUR 471.9 million in the first three quarters of 2015 (previous year: EUR 414.1 million). Compared with the same period of the previous year, sales grew by EUR 57.8 million, an increase of 14.0%. The Business Unit's share in Group sales increased slightly to 57.7% (previous year: 57.2%).
The gross profit in the Trailer Systems Business Unit increased disproportionately to segment sales by 34.6% to EUR 54.1 million (previous year: EUR 40.2 million). This brought the gross margin to 11.5% (previous year: 9.7%). With an increase of 76.7%, adjusted EBIT reached EUR 30.4 million (previous year: EUR 17.2 million). The adjusted EBIT margin increased to 6.5% (previous year: 4.2%) and was thereby above the target of 6.0%. Alongside economies of scale from increased business volumes, the success of our measures to increase the profitability of the Business Unit also contributed to the positive earnings development. The aim of the measures was to increase Trailer Systems' adjusted EBIT margin to around 6% by the end of 2015. This goal has already been achieved in both the second and third quarters of 2015.
The plant consolidation in Germany, which was successfully completed in September 2015, was an essential part of the efficiency enhancement program. The previous plant in Wörth has now been completely integrated into the plants at the Bessenbach location. Initiatives were subsequently launched in Bessenbach to increase flexibility and optimize material, manufacturing and product flows. Further information on plant consolidation and follow-up measures can be found on page 13.
In the Powered Vehicle Systems Business Unit, sales in the first nine months of the year increased by 13.3% to EUR 139.3 million (previous year: EUR 122.9 million). The share of Group sales totaled 17.1% (previous year: 17.0%). The Powered Vehicle Systems Business Unit generates the majority of its sales in North America. Sales development therefore reflects the positive effects from conversion of sales generated in US dollars into the Group currency euro.
Gross profit of the Business Unit increased to EUR 23.2 million (previous year: EUR 21.0 million). Primarily due to the declining fracking activities in the US, the business with vocational truck suspensions dropped during the first nine months of 2015. Nevertheless, higher capacity utilization and the Group-wide measures for optimization of manufacturing costs contributed to a gross margin that held nearly constant at 16.7% (previous year: 17.1%). The adjusted EBIT showed a higher percentage growth than sales of 29.6% reaching EUR 10.5 million (previous year: EUR 8.1 million). The adjusted EBIT margin totaled 7.5% in the first nine months of 2015 (previous year: 6.6%). It thereby moved closer to the target corridor of the Business Unit, which is between 8 and 9%.
In Europe, Powered Vehicle Systems continued to benefit from product innovations, an improved market environment and stronger export business.
In the United States, SAF-HOLLAND starts to deliver components for a government contract to last several years, although still at a limited volume. The project is expected to extend to 1,800 transport vehicles.
The Aftermarket Business Unit increased sales between January and September 2015 by 10.6% to EUR 206.3 million (previous year: EUR 186.5 million). More than a quarter (25.2%; previous year: 25.8%) of Group sales were thus generated by this Business Unit in the reporting period.
The international expansion of our aftermarket activities required further initial investment, including in the expansion of the Group's own Parts Distribution Centers and the associated start-up costs. The regional focus was particularly on the Middle East (Dubai) and the ASEAN countries (Malaysia). Despite these costs, the gross profit increased to EUR 57.9 million (previous year: EUR 54.1 million) with a slightly decreased gross margin of 28.1% (previous year: 29.0%). Adjusted EBIT improved by 7.9% to EUR 32.7 million (previous year: EUR 30.3 million). The resulting adjusted EBIT margin amounted to 15.8% (previous year: 16.2%) and was thus within the planned range of 15 to 16%.
In North America, the Aftermarket Business Unit further expanded its sales structures, with a focus on the large area states in which SAF-HOLLAND was previously under-represented. This regional expansion of the sales and service network will provide additional sales opportunities. SAF-HOLLAND is thereby moving into a position to meet the increased demand expected in the medium-term on the US market. This is due to the expectations that the market environment, which is currently difficult for the spare parts business, as it is characterized by high new vehicle registrations and a significantly increased number of new vehicles in the North American truck and trailer fleets, will have an increased need for wear-out and spare parts in the coming years.
Financial Position and Financial Performance
In the first nine months of 2015, cash flow before changes to net working capital totaled EUR 83.0 million (previous year: EUR 62.5 million). Net working capital was EUR 131.6 million (previous year: EUR 117.1 million). Calculated based on sales over twelve months, the resulting net working capital ratio is 12.7% (previous year: 12.1%).
The increased net working capital in comparison with the same period of the previous year is a result, on the one hand, of the business expansion and, on the other hand, of the sum of various individual structural factors. Primary among these are the significantly higher trade receivables. They are influenced on the one hand by foreign currency exchange effects and on the other hand by the high business volumes and generally high payment targets in other regions, which are above the European and North American average.
Development of cash flow from operating activities before income taxes, which more than doubled to EUR 43.8 million (previous year: EUR 21.4 million), is particularly noteworthy. Apart from earnings before taxes, which showed an improvement of EUR 20.6 million, the significantly lower expansion of inventories by EUR 2.9 million (previous year: EUR 18.3 million) in comparison with the first nine months of the previous year made a key contribution.
Cash flow from investing activities amounted to EUR -20.7 million (previous year: EUR -20.9 million) and was thus nearly unchanged as compared to the same period in the previous year. On the one hand the group increased investments in plant, property and equipment by EUR 2.7 million to EUR 16.6 million (previous year: EUR 13.9 million). On the other hand in the first nine months of 2015, payments for acquisitions did not occur. In the previous year payments which were related to the takeover of a 80% stake in Corpco, Beijing Technology and Development Co., Ltd., China had amounted to EUR 4.5 million. Cash flow from financing activities amounted to EUR -22.3 million in the reporting period (previous year: EUR 15.9 million). It should be noted that this position in the corresponding period of the previous year includes EUR 100.2 million in payments from the issuing of convertible bonds, which was countered by the repay of bank loans in the amount of EUR 64.3 million.
Between January and September 2015, SAF-HOLLAND made investments of EUR 21.2 million Group-wide (previous year: EUR 21.2 million), which corresponds to an investment rate of 2.6% (previous year: 2.9%) in relation to Group sales. Start-up expenses for the Parts Distribution Centers in Malaysia and Dubai were the focus of our investments. In addition, there were also expenses related to the plant consolidation in Europe, including procurement of machines and equipment as well as the expansion of buildings.
As of September 30, 2015 total assets rose to EUR 691.1 million (December 31, 2014: EUR 645.2 million). Equity increased as of the reporting date to EUR 271.8 million (December 31, 2014: EUR 248.6 million). This corresponds to an equity ratio of 39.3% (December 31, 2014: 38.5%).
The high property, plant and equipment, which was influenced by the new purchase of equipment and machines as well as the expansion of buildings following plant consolidations, made an important contribution to the increase in non-current assets to EUR 378.8 million (December 31, 2014: EUR 364.0 million). Current assets of EUR 312.3 million (December 31, 2014: EUR 281.2 million) are influenced primarily by higher trade receivables. They grew, among other things, due to the business expansion to EUR 144.2 million (December 31, 2014: EUR 103.0 million), with 50 days outstanding (December 31, 2014: 39 days outstanding). Cash and cash equivalents amounted to EUR 31.9 million as of the reporting date (December 31, 2014: EUR 44.2 million).
The targeted inventory cuts were carried out as planned. As of September 30, 2015, inventories totaled EUR 125.6 million (December 31, 2014: EUR 122.2 million). In comparison, inventories were higher than on December 31, 2014, however, in relation to June 30, 2015 the inventories had been reduced by EUR 11.1 million (June 30, 2015: EUR 136.7 million). The days of inventory outstanding stood at 54 days at the end of the third quarter of 2015 (December 31, 2014: 56 days).
The temporarily larger inventory volume and the days of inventory outstanding above our target of 45 days reflect the temporary measures as part of the plant consolidation and the expanded number of Parts Distribution Centers. Stocks of prefabricated components were intentionally established before the move of plants and machines from the Wörth plant to the Bessenbach location at the end of September. Inventories were already reduced in Europe in the third quarter. In North America, the inventory volume was still above the normal range in order to cope with vacation plant closings and changes within the plant network.
On the liabilities side, non-current liabilities amounted to EUR 271.1 million (December 31, 2014: EUR 265.0 million). Deferred tax liabilities and other provisions contributed to the increase. The deferred tax liabilities amounted to EUR 46.2 million on the reporting date (December 31, 2014: EUR 40.5 million) and other provisions accounted for EUR 9.7 million (previous year: EUR 6.8 million). Current liabilities amounted to EUR 148.2 million (December 31, 2014: EUR 131.6 million). Among other things, they reflect the high trade payables as a result of the increased sales volume.
Liabilities from interest bearing loans and bonds as of September 30, 2015 amounted to EUR 181.7 million (previous year: EUR 181.3 million). Including cash and cash equivalents, this results in a net debt of EUR 149.8 million on the reporting date (December 31, 2014: EUR 137.1 million). Total liquidity amounted to EUR 136.0 million, below the December 31, 2014 value of EUR 146.9 million, but at EUR 16.6 million significantly above the total liquidity of EUR 119.4 million on June 30, 2015.
Financial Position and Financial Performance
| 09/30/2015 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| kEUR | Amount drawn valued as of the period-end exchange rate |
Agreed credit lines valued as of the peri od-end exchange rate |
Cash and cash equivalents |
Total Liquidity | ||||||
| Facility A | 5,852 | 85,000 | – | 79,148 | ||||||
| Facility B | 31 | 22,233 | – | 22,202 | ||||||
| Other Facility | 2,883 | 5,580 1) |
31,903 | 34,600 | ||||||
| Total | 8,766 | 112,813 | 31,903 | 135,950 |
1) Bilateral credit line for the activities of the Group in China.
| 12/31/2014 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| kEUR | Amount drawn valued as of the period-end exchange rate |
Agreed credit lines valued as of the peri od-end exchange rate |
Cash and cash equivalents |
Total Liquidity | |||||
| Facility A | 5,822 | 85,000 | – | 79,178 | |||||
| Facility B | – | 20,568 | – | 20,568 | |||||
| Other Facility | 2,356 | 5,360 1) |
44,165 | 47,169 | |||||
| Total | 8,178 | 110,928 | 44,165 | 146,915 |
As of September 30, 2015, SAF-HOLLAND employed 3,316 people worldwide (previous year: 3,355) including temporary employees. With a share of 43% (previous year: 46%), the majority of our workforce was employed by our North American subsidiaries. 37% percent of the workforce belonged to the European organization (previous year: 36%) while a further 20% (previous year: 18%) belonged to our locations outside the two core markets. SAF-HOLLAND had an average of 3,377 employees in the Group in the first three quarters of the year (previous year: 3,374). Average sales per employee totaled kEUR 242.1 (previous year: kEUR 214.5).
| Total | 3,316 | 3,355 |
|---|---|---|
| Other | 654 | 608 |
| North America | 1,437 | 1,537 |
| Europe | 1,225 | 1,210 |
| 09/30/2015 | 09/30/2014 |
In Research and Development, we continue to work on pioneering product innovations. Furthermore, technological adaptations to special customer wishes or regional market requirements played an important role.
In terms of the development goals, success for fleet customers is the focus for SAF-HOLLAND. In the reporting period, we therefore concentrated primarily on innovations for weight reductions. The main focus remained on extended service life, safety and maintenancefriendliness.
From January to September we invested a total of EUR 17.9 million in research and development (previous year: EUR 16.6 million). Including the capitalized development costs and in relation to Group sales this corresponds to an R&D ratio of 2.2% (previous year: 2.3%). The proportion of the capitalized development costs during the reporting period totaled EUR 3.1 million (previous year EUR 1.9 million) as a result of a broad range of new projects.
The Group has recorded no material changes from the opportunities and risk profile at the end of the 2014 financial year, as outlined in the 2014 annual report. Overall, the risks are assessed as being manageable. We have made sufficient provisions for known risks.
A new syndicated loan was agreed in October 2015 with a narrowed consortium of banks. It replaces the previous financing arrangement and ensures that the Group is supplied with short and long-term financing at more favorable interest rates until October 2022 at the latest. The new credit agreement includes a revolving credit line of approximately EUR 150 million – divided into EUR 120 million and USD 35 million – and can be utilized in various currencies. The available credit line has thus increased to approximately EUR 156 million (December 31, 2014: EUR 110.9 million).
Furthermore, in October a consortium of banks was contracted to market a bonded loan with a nominal value of EUR 125 million. The term of the bonded loan is between five and ten years.
The world economy is continuing its growth path, but at a slower tempo than initially expected. While, on the one hand, the signs of recovery in Western Europe are becoming stronger and the USA continues to grow despite fluctuations, the economic dynamic in many emerging market countries is diminishing noticeably. With this in mind, global production is expected to expand by 3.3% in 2015 and by 3.7% in 2016 according to the Institute for World Economy (IfW).
Risks for the global economy remain in the still difficult to assess economic slowdown in China. In addition, the global economic situation remains vulnerable to disruptions from geopolitical tensions and negative influences from the financial markets. The Greek debt crisis also still represents a certain risk factor. From the IMF's perspective, the situation should have only a limited impact on the global economy.
With an anticipated increase of 2.0% this year and 2.5% in the coming year, total economic output of the industrialized nations continues to pick up speed. Economic recovery in the Euro zone is being supported by lower interest rates and comparatively low oil and gas prices as well as by the advantageous external value of the Euro. The economic upswing should, as a Financial Position and Financial Performance Oppurtunities and Risk Report Events after the Balance Sheet Date Outlook
result, consolidate. Impetus is increasingly coming from domestic demand as well. In 2015, the gross domestic product in the European Union will increase by 1.5% according to the IfW. Growth of 1.7% is believed to be possible for 2016.
In the USA, the drivers of consumption and investment remain strong and, as a result, growth in US-American gross domestic product is anticipated to be 2.5% this year and 3.0% in the coming year.
In contrast, the growth rate for emerging economies is expected to slow down in 2015 to 4.1% in 2015: export revenues which have decreased due to the low price of crude oil are negatively impacting economic development. For 2016, however, the IfW assumes that the gross domestic product of the emerging economies, particularly in the NEXT 11 countries, will show stronger growth and could reach a level of 4.6%.
Economic output in Brazil will likely decline this year by a further 2.5%. On this considerably reduced basis, the South American country should leave the recession behind it in 2016 and should be able to achieve an at least moderate growth rate of 0.2%. Following an expected decrease in GDP of 3.6% in 2015, the Russian economy is also expected to grow slightly again in 2016. Assuming that the political tensions lessen and the oil price stabilizes, the IfW expects Russian production to increase by 1.0% in 2016.
Most likely, China will not reach the growth target of 7% which was set by the Chinese government. Despite the country's expansive monetary and fiscal policies, the IfW anticipates an increase in economic output of 6.6% in 2015 and 6.3% in the following year. The economy in India will likely show stronger growth. An increase of 7.0% this year and 6.7% in 2016 is forecast for the subcontinent.
FORECAST ECONOMIC TREND IN IMPORTANT MARKETS
| 2014 | 2015 | 2016 | |
|---|---|---|---|
| European Union | 1.3% 1) |
1.8% | 2.0% |
| Eurozone | 0.9% 1) |
1.5% | 1.7% |
| Germany | 1.6% 2) |
1.8% | 2.1% |
| United States of America | 2.4% | 2.5% | 3.0% |
| Brazil | 0.1% | -2.5% | 0.2% |
| Russia | 0.4% | -3.6% | 1.0% |
| India | 7.2% | 7.0% | 6.7% |
| China | 7.4% | 6.6% | 6.3% |
1) Institute for World Economy (IfW), Global Economy in Summer 2015 (June 2015). 2) Institute for World Economy (IfW), Global Economy in Fall 2015 (September 2015).
Source: Institute for World Economy (IfW), Global Economy in Fall 2015, September 2015.
The global commercial vehicle markets continue to develop very differently depending on the region. Nevertheless, in the course of further growth in the world economy, a generally solid development of the commercial vehicles business is anticipated. The enduring solid for demand for trucks and trailers in the Western European countries is countered by weakening demand patterns in Northern America and a persistent extremely weak development in the Brazilian, Russian and Australian markets.
A continuation of the recovery is expected for both the remainder of 2015 and for 2016 in the European commercial vehicles market. Pent up demand, which remains in place following years
Continued solid market situation in the Western European core market
of limited investment in combination with an economic recovery that is picking up speed in many European countries, is supporting demand for trucks and trailers. The still above-average age of the vehicle fleets is also contributing to this development. The reduction of pent up demand and the associated renewal of the fleets should proceed for some time to come. With regard to Western Europe SAF-HOLLAND continues to operate in a comparatively sound market environment.
Industry experts expect that approximately 154,000 trailers will be registered for the first time in Western Europe in 2015 which is 1.4% more than in the previous year. With regard to the upcoming year 2016, SAF-HOLLAND currently anticipates a moderate growth in the Western European trailer market. Some more optimistic market researchers expect new vehicle registrations to increase by 12.8% to approximately 174,000 units. For Europe as a whole, only moderate growth in trailer sales is anticipated for 2015 as the strong development of the Western European markets is diminished by the marked weakness of the fourth largest European trailer market, Russia. This trend is likely to continue in 2016.
According to industry experts, the Russian truck market overall could drop by as much as 30% in the current year. Forecasts for the trailer sector are only slightly better.
Moderate growth in the gross domestic product and in investments is expected for most Eastern European states in 2016. In parallel, an increase in demand for trailers is expected. Yet, the unchanged uncertain surrounding conditions and political issues associated with the Russian market pose a risk for the industry in the entire region.
The recovery of the European truck market should continue during the remainder of the year. It is expected that first time registrations for heavy trucks over 16 tons in the region West, Central and Eastern Europe in 2015 will be 13.3% better than in the previous year and will grow by a further 7.5% in 2016.
In the North American heavy duty truck and trailer markets, despite the fact that demand patterns have been showing signs of weakening, for the full year 2015 double digit growth rates still appear likely. According to recent industry estimates, it is expected that in the current year 2015 13.1% more heavy trucks (class 8) will be built in North America and 14.0% more trailers will be delivered than in the already strong previous year.
Depending upon the trend in the overall economy, it cannot be ruled out that, coming from these high levels, production figures for heavy trucks and trailers in the U.S. will decline by an amount in the high single digit or slight double-digit percentage range in 2016. SAF-HOLLAND, counters these market trends by structurally expanding its business with trailer axle systems and suspensions and stepping up activities with regard to air suspension systems for trucks as well as new products ramp up. Improved prospects for the US are seen for our aftermarket business in the coming years. At this time the market environment in North America for the spare parts business is somewhat difficult, one that is shaped by significant investments in new vehicles and record highs in first time registrations for trucks and trailers. In the years to come, these vehicles will offer a sound foundation for the delivery of wear and spare parts.
With a view to the Brazilian commercial vehicles market, no more noticeable upswing tendencies are expected over the course of the rest of the year. The Brazilian trailer market will thus shrink by approximately 38% in the full year 2015. Market volume for the South American country has thus fallen by more than half since 2013.
There is an uneven picture in Asia's volume markets. In India, the market for trucks in class 8 is likely to grow by 20.4% this year. Sales will then expand by a further 18.9% in 2016. For China, industry experts expect a 2.4% decline in deliveries for heavy trucks in 2015 as a result of the Outlook
weakened growth dynamic. In the coming year, demand for heavy trucks is expected, however, to become positive and allow for growth of 8.8%.
Good perspectives remain in place for the bus market. Worldwide, this commercial vehicles segment is expected to increase by 2.4% in 2015 and by 3.6% in 2016. It is primarily emerging countries that are responsible for the increasing demand. Industry analysts expect, for example, that the Indian market for buses will record average annual growth rates of 9.4% until the year 2020. The market segment for electric buses, in which SAF-HOLLAND is extremely well-positioned with specifically designed J-Beam suspension systems, will likely grow by an average of 19% per year over the same period.
In China, SAF-HOLLAND expects to benefit from the increased use of road-friendly air suspension systems. In the medium term, this development is likely to have a positive impact on both the truck as well as the trailer business. In the case of buses, the trend is moving toward more comfort and favors the sales opportunities for air suspension systems, for which Corpco is among the leading suppliers. In addition, demand for environmentally-friendly battery-operated e-buses, for which SAF-HOLLAND has developed special technological solutions.
From a medium term perspective, Brazil and Russia continue to be seen as attractive sales regions with increasing transport volumes. The Brazilian market should, despite the risks that are undoubtedly present, bottom out in the course of the second half of 2016 and begin its moderate path to recovery on the basis of the already described very low foundation. In addition, one of the largest trailer manufacturers in the region has decided to transfer the previously in-house axle production to SAF-HOLLAND in the future. The sales situation in Russia depends strongly on the political conditions, which means that at the moment, it is only anticipated that the market situation will stabilize in 2016. As a result of the extended weak sales situation, however, an investment bottleneck has been built up in the country. Once the appropriate political signals occur, this could provide a positive impetus for the truck and trailer market.
Despite the unexpectedly severe market collapse in Brazil, Russia and Australia, the overall positive business development in the first nine months of 2015 provides a solid foundation for the remaining months of financial year 2015.
From the present point of view, we assume that the solid business development of SAF-HOLLAND will continue during the course of the year and that the company will once more manage to grow profitably in full year 2015. The company confirms the company targets for the full year which were slightly increased in the second quarter. The solid year-to-date organic growth of 3.6% in connection with the positive exchange rate effects already described make us confident that full-year 2015 Group sales will reach at least the upper end of our projected sales range of EUR 980 million to EUR 1.035 billion (previous year: EUR 959.7 million) or be slightly higher.
030
Cost discipline, combined with efficiency increases in production, to which plant consolidations are already making a contribution, as well as the satisfactory capacity utilization in most markets, should also enable disproportionately high earnings development in the full year. The company thus continues to assume that profitability as compared to the previous year will increase noticeably and that the adjusted EBIT margin will reach the lower end of the corridor of 9 to 10% (previous year 7.4%). Under the assumption of a continued stable economic and industry development, management now anticipates that for the full year 2015, the adjusted EBIT is expected to come in slightly higher than EUR 90 million (originally: around EUR 90 million). With earnings per share, management expects an increase of about 30% under full consideration of the higher number of share equivalents due to the convertible bonds issued in 2014.
Following the now completed relocation of the Wörth plant to the Bessenbach location, the company expects that the net working capital can be gradually reduced over the course of the rest of the year. As a result of the optimizations in the manufacturing processes that are ongoing until the middle of the year 2016, additional cost reduction opportunities will be utilized.
Consolidated Interim Financial Statements 046 Additional Information
Outlook
038
9 Equity
10 Other Provisions
| Result for the period Sales Cost of sales Gross profit Other income Selling expenses |
(5) | ||||
|---|---|---|---|---|---|
| 817,524 | 723,531 | 258,785 | 241,567 | ||
| -658,649 | -587,510 | -208,602 | -196,324 | ||
| 158,875 | 136,021 | 50,183 | 45,243 | ||
| 1,245 | 831 | 352 | 518 | ||
| -45,490 | -42,799 | -14,504 | -14,312 | ||
| Administrative expenses | -35,186 | -32,573 | -11,011 | -10,790 | |
| Research and development costs | -14,787 | -14,704 | -4,041 | -4,899 | |
| Operating result | (5) | 64,657 | 46,776 | 20,979 | 15,760 |
| Finance income | (6) | 6,715 | 6,190 | -670 | 4,859 |
| Finance expenses | (6) | -9,212 | -11,335 | -3,245 | -4,045 |
| Share of net profit of investments accounted for using the equity method |
1,048 | 933 | 289 | 525 | |
| Result before tax | 63,208 | 42,564 | 17,353 | 17,099 | |
| Income tax | (7) | -21,063 | -13,822 | -5,560 | -5,906 |
| Result for the period | 42,145 | 28,742 | 11,793 | 11,193 | |
| Attributable to: | |||||
| Equity holders of the parent | 42,061 | 28,767 | 11,825 | 11,190 | |
| Non-controlling interests | 84 | -25 | -32 | 3 | |
| Other comprehensive income | |||||
| Items that may be reclassifed subsequently to profit or loss | |||||
| Exchange differences on translation of foreign operations | (9) | -4,384 | 7,996 | -12,084 | 5,914 |
| Changes in fair values of derivatives designated as hedges, recognized in equity |
(9)/(12) | – | 1,439 | – | 865 |
| Income tax effects on items recognized directly in other com prehensive income |
(9) | – | -392 | – | -235 |
| Other comprehensive income | -4,384 | 9,043 | -12,084 | 6,544 | |
| Comprehensive income for the period | 37,761 | 37,785 | -291 | 17,737 | |
| Attributable to: | |||||
| Equity holders of the parent | 37,901 | 37,810 | 294 | 17,734 | |
| Non-controlling interests | -140 | -25 | -585 | 3 | |
| Basic earnings per share in EUR | 0.93 | 0.63 | 0.26 | 0.24 | |
| Diluted earnings per share in EUR | 0.80 | 0.63 | 0.22 | 0.24 |
Consolidated Statement of Comprehensive Income Consolidated Balance Sheet
| kEUR | Notes | 09/30/2015 | 12/31/2014 |
|---|---|---|---|
| Assets | |||
| Non-current assets | 378,772 | 363,955 | |
| Goodwill | 52,185 | 50,248 | |
| Intangible assets | 145,038 | 142,363 | |
| Property, plant and equipment | 126,642 | 116,971 | |
| Investments accounted for using the equity method | 12,915 | 11,805 | |
| Financial assets | 129 | 118 | |
| Other non-current assets | 2,590 | 3,042 | |
| Deferred tax assets | 39,273 | 39,408 | |
| Current assets | 312,335 | 281,241 | |
| Inventories | 125,561 | 122,156 | |
| Trade receivables | 144,247 | 102,964 | |
| Income tax assets | 2,691 | 2,732 | |
| Other current assets | 7,886 | 9,108 | |
| Financial assets | 47 | 116 | |
| Cash and cash equivalents | (8) | 31,903 | 44,165 |
| Total assets | 691,107 | 645,196 | |
| Equity and liabilities | |||
| Total equity | (9) | 271,842 | 248,597 |
| Equity attributable to equity holders of the parent | 269,978 | 246,593 | |
| Subscribed share capital | 454 | 454 | |
| Share premium | 268,644 | 268,644 | |
| Legal reserve | 45 | 45 | |
| Other reserve | 436 | 436 | |
| Retained earnings | 26,772 | -773 | |
| Accumulated other comprehensive income | -26,373 | -22,213 | |
| Shares of non-controlling interests | 1,864 | 2,004 | |
| Non-current liabilities | 271,099 | 264,997 | |
| Pensions and other similar benefits | 38,970 | 37,493 | |
| Other provisions | (10) | 9,735 | 6,799 |
| Interest bearing loans and bonds | (11) | 173,862 | 177,797 |
| Finance lease liabilities | 1,590 | 1,773 | |
| Other liabilities | 722 | 685 | |
| Deferred tax liabilities | 46,220 | 40,450 | |
| Current liabilities | 148,166 | 131,602 | |
| Other provisions | (10) | 7,423 | 10,134 |
| Interest bearing loans and bonds | (11) | 7,831 | 3,543 |
| Finance lease liabilities | 435 | 399 | |
| Trade payables | 102,783 | 94,363 | |
| Income tax liabilities | 5,950 | 4,704 | |
| Other financial liabilities | 771 | 45 | |
| Other liabilities | 22,973 | 18,414 | |
| Total equity and liabilities | 691,107 | 645,196 | |
| Q3/2015 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Attributable to equity holders of the parent | |||||||||||
| kEUR | Sub scribed share capital |
Share premium |
Legal reserve |
Other reserve |
Retained earnings |
Accumulated other comprehensive income |
Total amount |
Shares of non controlling interests |
Total equity (Note 9) |
||
| As of 01/01/2015 | 454 268,644 | 45 | 436 | -773 | -22,213 | 246,593 | 2,004 | 248,597 | |||
| Result for the period | – | – | – | – | 42,061 | – | 42,061 | 84 | 42,145 | ||
| Other comprehensive income |
– | – | – | – | – | -4,160 | -4,160 | -224 | -4,384 | ||
| Comprehensive income for the period |
– | – | – | – | – | – | 37,901 | -140 | 37,761 | ||
| Dividend | – | – | – | – | -14,516 | – | -14,516 | – | -14,516 | ||
| As of 09/30/2015 | 454 268,644 | 45 | 436 | 26,772 | -26,373 | 269,978 | 1,864 | 271,842 |
| Q3/2014 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| kEUR | Sub scribed share capital |
Share premium |
Legal reserve |
Other reserve |
Retained earnings |
Accumulated other comprehensive income |
Total amount |
Shares of non controlling interests |
Total equity (Note 9) |
| As of 01/01/2014 | 454 | 265,843 | 22 | 436 | -21,145 | -23,424 | 222,186 | – | 222,186 |
| Result for the period | – | – | – | – | 28,767 | – | 28,767 | -25 | 28,742 |
| Other comprehensive income |
– | – | – | – | – | 9,043 | 9,043 | – | 9,043 |
| Comprehensive income for the period |
– | – | – | – | – | – | 37,810 | -25 | 37,785 |
| Dividend | – | – | – | – | -12,248 | – | -12,248 | – | -12,248 |
| Addition of shares of non-controlling interests |
– | – | – | – | – | – | – | 1,560 | 1,560 |
| Other reclassifications | – | – | 23 | – | -23 | – | – | – | – |
| Convertible bond | – | 2,801 | – | – | – | – | 2,801 | – | 2,801 |
| As of 09/30/2014 | 454 | 268,644 | 45 | 436 | -4,649 | -14,381 | 250,549 | 1,535 | 252,084 |
002 Company 012 Group Interim Management Report 032 Consolidated Interim Financial Statements
Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement
| kEUR | Notes | Q1-Q3/2015 | Q1-Q3/2014 | |
|---|---|---|---|---|
| Cash flow from operating activities | ||||
| Result before tax | 63,208 | 42,564 | ||
| - | Finance income | (6) | -6,715 | -6,190 |
| + | Finance expenses | (6) | 9,212 | 11,335 |
| +/- | Share of net profit of investments accounted for using the equity method | -1,048 | -933 | |
| + | Amortization/depreciation of intangible assets and property, plant and equipment | 16,000 | 14,353 | |
| + | Allowance of current assets | 2,526 | 1,138 | |
| +/- | Loss/Gain on disposal of property, plant and equipment | -170 | 235 | |
| + | Dividends from investments accounted for using the equity method | 18 | 17 | |
| Cash flow before change of net working capital | 83,031 | 62,519 | ||
| +/- | Change in other provisions and pensions | -1,778 | -43 | |
| +/- | Change in inventories | -2,897 | -18,340 | |
| +/- | Change in trade receivables and other assets | -40,615 1) |
-44,052 1) |
|
| +/- | Change in trade payables and other liabilities | 6,027 | 21,271 | |
| Cash flow from operating activities before income tax paid | 43,768 | 21,355 | ||
| - | Income tax paid | (7) | -13,826 | -8,568 |
| Net cash flow from operating activities | 29,942 | 12,787 | ||
| Cash flow from investing activities | ||||
| - | Purchase of property, plant and equipment | -16,605 | -13,880 | |
| - | Purchase of intangible assets | -4,570 | -2,819 | |
| + | Proceeds from sales of property, plant and equipment | 407 | 218 | |
| - | Payments for acquisition of subsidiaries net of cash | - | -4,490 | |
| + | Interest received | 59 | 69 | |
| Net cash flow from investing activities | -20,709 | -20,902 | ||
| Cash flow from financing activities | ||||
| - | Dividend payments to shareholders of SAF-HOLLAND S.A. | (9) | -14,516 | -12,248 |
| - | Paid transaction costs relating to the issuance of the convertible bond | – | -771 | |
| + | Proceeds from convertible bond placement | – | 100,200 | |
| - | Payments for replacement interest rate swaps | – | -1,142 | |
| - | Payments for finance lease | -324 | -266 | |
| - | Interest paid | -7,816 | -9,100 | |
| - | Repayments of current and non-current financial liabilities | (11) | – | -64,275 |
| +/- | Change in drawings on the credit line and other financing activities | (11) | 323 | 3,499 |
| Net cash flow from financing activities | -22,333 | 15,897 | ||
| Net decrease/increase in cash and cash equivalents | -13,100 | 7,782 | ||
| +/- | Effect of changes in exchange rates on cash and cash equivalents | 838 | 585 | |
| Cash and cash equivalents at the beginning of the period | (8) | 44,165 | 23,856 | |
| Cash and cash equivalents at the end of the period | (8) | 31,903 | 32,223 | |
1) As of September 30, 2015, trade receivables in the amount of EUR 25,0 million (previous year: EUR 17,4 million) were sold in the context, of a factoring contract. Assuming the legal validity of the receivable, no further rights of recourse exist against SAF-HOLLAND from the sold receivables.
For the period January 1 to September 30, 2015
SAF-HOLLAND S.A. (the "Company") was incorporated on December 21, 2005 under the legal form of a "Société Anonyme" according to Luxembourg law. The registered office of the Company is in Luxembourg. The shares of the Company are listed in the Prime Standard of the Frankfurt Stock Exchange. They have been included in the SDAX since 2010.
The consolidated financial statements of SAF-HOLLAND S.A. and its subsidiaries (the "Group") have been prepared in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Union and in effect as of the closing date.
The consolidated interim financial statements for the third quarter of 2015 have been prepared in accordance with IAS 34 "Interim Financial Reporting". Unless expressly indicated otherwise, the same accounting policies and consolidation methods were applied as in the Group's annual financial statements for the financial year 2014. Therefore, the consolidated interim financial statements should be read in conjunction with the Group's annual financial statements as of December 31, 2014.
In preparing the consolidated interim financial statements, management has to make assumptions and estimates which affect the reported amounts of assets, liabilities, income, expenses, and contingent liabilities as of the reporting date. In certain cases, actual amounts may differ from these assumptions and estimates.
Expenses and income incurred irregularly during the financial year were anticipated or deferred if it would also be appropriate to take them into account at the end of the financial year.
The consolidated interim financial statements and the Group Interim Management Report have neither been audited nor reviewed by an auditing firm.
Seasonal effects during the year can result in variations in sales and the resulting profits. Please see the Group Interim Management Report for further details regarding earnings development.
There were no changes to the scope of consolidation compared to the consolidated financial statements as of December 31, 2014.
For management purposes, the Group is organized into customer-oriented Business Units based on their products and services. The three reportable core segments are the Business Units Trailer Systems, Powered Vehicle Systems, and Aftermarket. There has been no change in the division of segments since December 31, 2014. For more information, please see the Notes to the Consolidated Financial Statement for the financial year 2014.
Corporate Information Significant Accounting Policies
Seasonal Effects Scope of Consolidation Segment Information
Management assesses the performance of the operating segments based on adjusted EBIT. The reconciliation from operating result to adjusted EBIT is provided as follows:
| kEUR | Q1-Q3/2015 | Q1-Q3/2014 |
|---|---|---|
| Operating result | 64,657 | 46,776 |
| Share of net profit of investments accounted for using the equity method | 1,048 | 933 |
| EBIT | 65,705 | 47,709 |
| Additional depreciation and amortization from PPA | 4,838 | 4,537 |
| Restructuring and integration costs | 3,018 | 3,356 |
| Adjusted EBIT | 73,561 | 55,602 |
Information on segment sales and earnings for the period from January 1 to September 30, 2015:
| Q1-Q3/2015 | ||||||
|---|---|---|---|---|---|---|
| Business Units | ||||||
| kEUR | Trailer Systems | Powered Vehicle Systems |
Aftermarket | Consolidated | ||
| Sales | 471,910 | 139,315 | 206,299 | 817,524 | ||
| Adjusted EBIT | 30,441 | 10,480 | 32,640 | 73,561 | ||
| Adjusted EBIT margin | 6.5% | 7.5% | 15.8% | 9.0% |
| Q1-Q3/2014 | ||||||
|---|---|---|---|---|---|---|
| Business Units | ||||||
| kEUR | Trailer Systems | Powered Vehicle Systems Aftermarket |
Consolidated | |||
| Sales | 414,117 | 122,885 | 186,529 | 723,531 | ||
| Adjusted EBIT | 17,195 | 8,129 | 30,278 | 55,602 | ||
| Adjusted EBIT margin | 4.2% | 6.6% | 16.2% | 7.7% |
Please see the Group Interim Management Report regarding earnings development of the segments.
Finance income and expenses consist of the following:
| FINANCE INCOME | ||
|---|---|---|
| kEUR | Q1-Q3/2015 | Q1-Q3/2014 |
| Unrealized foreign exchange gains on foreign currency loans | 4,964 | 5,523 |
| Realized foreign exchange gains on foreign currency loans | 1,640 | 442 |
| Finance income due to derivatives | – | 138 |
| Interest income | 111 | 87 |
| Total | 6,715 | 6,190 |
Foreign exchange gains on foreign currency loans and dividends primarily comprise unrealized foreign exchange gains on intercompany-foreign currency loans translated at the period-end exchange rate. Realized foreign exchange gains on foreign currency loans and dividends primarily result from the translation of dividend receivables in US dollar as of December 31, 2014 and their settlement in the second quarter of 2015.
| FINANCE EXPENSES | |||
|---|---|---|---|
| Q1-Q3/2015 | Q1-Q3/2014 | ||
| -6,443 | 1) -7,218 |
||
| -450 | – | ||
| -417 | -651 | ||
| -788 | -730 | ||
| -755 | -2,375 | ||
| -359 | -361 | ||
| -9,212 | -11,335 | ||
| 1) |
1) Includes the non-cash interest expense of kEUR 472 (previous year: kEUR 31) for the convertible bond.
Transaction costs from the reporting period primarily result from the early reversal of capitalized transaction costs totaling kEUR -450 (previous year: kEUR 0) due to the refinancing which was finalized in October.
The amortization of transaction costs of kEUR -417 (previous year: kEUR -651) represents the contract closing fees recognized as expenses in the period in accordance with the effective interest method.
Finance expenses in connection with derivative financial instruments mainly result from foreign currency derivatives serving to hedge US dollar items in the Group.
In the previous year, finance expenses in connection with derivative financial instruments were primarily influenced by the reclassification of the cash flow hedge reserve recorded in equity of kEUR 1,234 through profit or loss. The recycling of the cash flow hedge reserve results from the early repayment of interest rate swaps in the context of the refinancing in October 2012. The cash flow hedge reserve has been released to the finance result using the effective interest method over the original term of the swaps. In addition, in the previous year, changes in value of interest rate hedges recorded in equity to that date of kEUR 924 were reclassified to the finance result through profit or loss, because the hedge relationship for interest rate swaps was discontinued in the third quarter of 2014 as a result of the decrease in the bank loan due to issuing the convertible bond. Furthermore, expenses in the amount of kEUR 217 resulted from the early repayment of the interest rate swaps in the previous year.
Finance Result Income Taxes Cash and Cash Equivalents Equity Other Provisions
The major components of income taxes are as follows:
| kEUR | Q1-Q3/2015 | Q1-Q3/2014 |
|---|---|---|
| Current income taxes | -15,724 | -12,132 |
| Deferred income taxes | -5,339 | -1,690 |
| Income tax reported in the result for the period | -21,063 | -13,822 |
The effective income tax rate in the third quarter of 2015 was 33.30%. The variance between the effective income tax rate and the Group's income tax rate of 30.60% (previous year: 30.70%) is mainly attributable to non-deductible expenses and unused tax loss carry forwards.
| kEUR | 09/30/2015 | 12/31/2014 |
|---|---|---|
| Cash on hand, cash at banks and checks | 31,898 | 44,160 |
| Short-term deposits | 5 | 5 |
| Total | 31,903 | 44,165 |
The Company's subscribed share capital is unchanged from December 31, 2014 and still amounted to EUR 453,611.12 on September 30, 2015. It consists of 45,361,112 ordinary shares with a par value of EUR 0.01 and is fully paid-in.
The company`s reserves – namely the share premium, the legal reserve and other reserves – are unchanged from December 31, 2014.
| Before tax amount | Tax expense | Net after tax amount | ||||
|---|---|---|---|---|---|---|
| kEUR | Q1-Q3/2015 | Q1-Q3/2014 | Q1-Q3/2015 | Q1-Q3/2014 | Q1-Q3/2015 | Q1-Q3/2014 |
| Exchange differences on translation of foreign operations |
-4,384 | 7,996 | – | – | -4,384 | 7,996 |
| Changes in fair values of derivatives designated as hedges, recognized in equity |
– | 1,439 | – | -392 | – | 1,047 |
| Total | -4,384 | 9,435 | – | -392 | -4,384 | 9,043 |
Changes in accumulated other comprehensive income consist of the following:
At the Annual General Meeting on April 23, 2015, it was decided to distribute a dividend in the amount of EUR 0.32 per share to shareholders from the net profit of the financial year just ended. Total dividend distribution amounts to EUR 14.5 million.
As a result of meeting the underlying performance targets of the phantom share plan as of December 31, 2014, payments were made under the plan in the first quarter 2015. The provision recognized in the previous year for this purpose of EUR 2.3 million was utilized in the reporting period in this context.
| Non-current | Current | Total | |||||
|---|---|---|---|---|---|---|---|
| kEUR | 09/30/2015 | 12/31/2014 | 09/30/2015 | 12/31/2014 | 09/30/2015 | 12/31/2014 | |
| Interest bearing loans | 2,883 | 8,178 | 5,883 | – | 8,766 | 8,178 | |
| Convertible bond | 96,908 | 96,436 | – | – | 96,908 | 96,436 | |
| Bond | 75,000 | 75,000 | – | – | 75,000 | 75,000 | |
| Financing costs | -1,128 | -1,931 | -470 | -505 | -1,598 | -2,436 | |
| Accrued interests | – | – | 2,395 | 4,000 | 2,395 | 4,000 | |
| Other loans | 199 | 114 | 23 | 48 | 222 | 162 | |
| Total | 173,862 | 177,797 | 7,831 | 3,543 | 181,693 | 181,340 |
The following table summarizes the determination of overall liquidity defined as available undrawn credit lines measured at the period-end exchange rate plus available cash and cash equivalents:
| 09/30/2015 | ||||||
|---|---|---|---|---|---|---|
| kEUR | Amount drawn valued as at the period-end exchange rate |
Agreed credit lines valued as at the period-end exchange rate |
Cash and cash equivalents |
Total liquidity | ||
| Facility A | 5,852 | 85,000 | – | 79,148 | ||
| Facility B | 31 | 22,233 | – | 22,202 | ||
| Other Facility | 2,883 | 1) 5,580 |
31,903 | 34,600 | ||
| Total | 8,766 | 112,813 | 31,903 | 135,950 |
1) Bilateral credit line for the activities of the Group in China.
| kEUR | 12/31/2014 | |||||
|---|---|---|---|---|---|---|
| Amount drawn valued as at the period-end exchange rate |
Agreed credit lines valued as at the period-end exchange rate |
Cash and cash equivalents |
Total liquidity | |||
| Facility A | 5,822 | 85,000 | – | 79,178 | ||
| Facility B | – | 20,568 | – | 20,568 | ||
| Other Facility | 2,356 | 1) 5,360 |
44,165 | 47,169 | ||
| Total | 8,178 | 110,928 | 44,165 | 146,915 |
002 Company 012 Group Interim Management Report 032 Consolidated Interim Financial Statements
046 Additional Information
Interest Bearing Loans and Bonds Financial Assets and Other Financial Liabilities
The fair values and carrying amounts of the financial assets were as follows as of the balance sheet date:
| 09/30/2015 | 12/31/2014 | |||
|---|---|---|---|---|
| kEUR | Fair value | Book value | Fair value | Book value |
| Financial assets measured at cost or amortized costs |
||||
| Cash and cash equivalents | 31,903 | 31,903 | 44,165 | 44,165 |
| Trade receivables | 144,247 | 144,247 | 102,964 | 102,964 |
| Other current assets | 973 | 973 | 1,089 | 1,089 |
| Derivatives without hedging | 176 | 176 | 234 | 234 |
| Financial liabilites measured at cost or amortized costs |
||||
| Trade payables | 102,783 | 102,783 | 94,363 | 94,363 |
| Interest bearing loans and bonds | 203,950 | 181,693 | 202,067 | 181,340 |
| Finance lease liabilities | 2,025 | 2,025 | 2,172 | 2,172 |
| Derivatives without hedging | 771 | 771 | 45 | 45 |
The following table shows the allocation of financial assets and liabilities measured at fair value to the three hierarchy levels of fair values:
| kEUR | ||||
|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Total | |
| Bonds | 194,165 | – | – | 194,165 |
| Interest bearing loans and borrowings | – | – | 9,785 | 9,785 |
| Derivative financial assets | – | 176 | – | 176 |
| Derivative financial liabilities | – | 771 | – | 771 |
| 12/31/20141) | ||||
|---|---|---|---|---|
| kEUR | Level 1 | Level 2 | Level 3 | Total |
| Bonds | 192,163 | – | – | 192,163 |
| Interest bearing loans and borrowings | – | – | 9,904 | 9,904 |
| Derivative financial assets | – | 234 | – | 234 |
| Derivative financial liabilities | – | 45 | – | 45 |
1) Changes in the fair value hierarchie of the interest bearing loans and borrowings compared to previous year annual financial statement.
As of September 30, 2015, the derivative financial assets and liabilities contain forward exchange transactions and are used to hedge the risk position arising from the currency fluctuation of the US dollar, Russian rubel, South African rand and Turkish lira.
The Board of Directors mandate of Richard W. Muzzy ended as planned with the Annual General Meeting of April 23, 2015. In order to ensure continuity, Martina Merz had already been elected to the Board in the previous year.
Since April 23, 2015, the Board of Directors has consisted of the following members:
Transactions with related parties and companies in which members of management hold key positions:
| Total | 1,015 | 770 | 29,309 | 22,468 |
|---|---|---|---|---|
| FWI S.A. | – | – | 29,309 | 22,468 |
| SAF-HOLLAND Nippon, Ltd. | 1,015 | 770 | – | – |
| kEUR | Q1-Q3/2015 | Q1-Q3/2014 | Q1-Q3/2015 | Q1-Q3/2014 |
| Sales to related parties | Purchases from related parties |
| Amounts owed by related parties |
Amounts owed to related parties |
||||
|---|---|---|---|---|---|
| kEUR | 09/30/2015 | 12/31/2014 | 09/30/2015 | 12/31/2014 | |
| SAF-HOLLAND Nippon, Ltd. | 163 | 537 | 207 | 207 | |
| FWI S.A. | – | – | 1,910 | 1,419 | |
| Total | 163 | 537 | 2,117 | 1,626 |
Please see the Group Interim Management Report for further explanations of the cash flow statement.
On October 13, 2015, an agreement was signed with a smaller consortium of banks which replaced the previous financing arrangement and ensures a long-term supply of long-term finance at more favorable interest rates for the Group until October 2022. The newly arranged credit agreement consists of a multi-currency revolving credit line of about EUR 150 million – subdivided into EUR 120 million and USD 35 million. As a result of the refinancing, the available credit lines increased to approximately EUR 156 million (December 31, 2014: EUR 110.9 million).
Related Party Disclosures Statement of Cash Flows Events after the Balance Sheet Date
The restructuring of the financing specifies the following main regulations:
Furthermore, in October a consortium of banks was contracted to market a bonded loan with a nominal value of EUR 125 million. The term of the bonded loan is between five and ten years.
No further material events have occurred since the reporting date.
Experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred) and the effects of changes in actuarial assumptions.
Earnings before interest and taxes (EBIT) is adjusted for special items, such as depreciation and amortization from purchase price allocations, impairment of goodwill and intangible assets, reversal of impairment of intangible assets as well as restructuring and integration costs.
For management purposes, the Group is organized into customer-oriented Business Units (Trailer Systems, Powered Vehicle Systems, and Aftermarket).
Cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or groups of assets.
Analysts at renowned banks and investment houses regularly observe and evaluate the development of SAF-HOLLAND S.A.'s shares.
Inventory / cost of sales per day (cost of sales of the quarter / 90 days).
Trade payables / cost of sales per day (cost of sales of the quarter / 90 days).
Trade receivables / sales per day (sales of the quarter / 90 days).
Income tax according to the income statement / earnings before tax x 100.
Equity / total assets x 100.
Amount obtainable from the sale in an arm's length transaction between knowledgeable, willing parties.
Gross profit / sales x 100.
Financial Glossary
I
The standard international accounting rules are intended to make company data more comparable. Under the EU resolution, accounting and reporting at listed companies must be done in accordance with these rules.
The mid-cap-DAX (MDAX) comprises 50 companies that rank immediately below DAX securities in terms of market capitalization and order book volume.
Current assets less cash and cash equivalents less current and non-current other provisions less trade payables less other current liabilities less income tax liabilities.
Factoring where the factor takes on the bad debt risk.
P
Personnel expenses (not including restructuring and integration costs) / average number of employees (not including temporary employees).
Prime Standard is a market segment of the German Stock Exchange that lists German companies which comply with international transparency standards.
Distribution of the acquisition costs of a business combination to the identifiable assets, liabilities and contingent liabilities of the (acquired) company.
R&D cost and capitalized development cost / sales x 100.
The recoverable amount is the higher of the fair value less cost to sell and the value in use.
S
Sales / average number of employees (including temporary employees).
The small-cap-DAX (SDAX) comprises 50 companies that rank immediately below mid-cap-DAX (MDAX) securities in terms of market capitalization and order book volume. As is the case with DAX, TecDAX and MDAX, the SDAX belongs to the Prime Standard.
Equity in a subsidiary not attributable, directly or indirectly, to a parent.
T
Total cost relating to acquisition, operating and maintenance of an asset.
V
Present value of future cash flows from an asset.
Technical Glossary
Landing Gear Retractable legs that support the front of a semi-trailer when it is not secured to the tractor unit. SAF-HOLLAND landing gear has a special coating that increases their ser vice life sig nifi cantly.
The axle system for trailers consists in general of the axle itself with either a disk brake or a drum brake and the mechanical or air suspension system.
| A | F | ||
|---|---|---|---|
| APO | Advanced Planner & Optimizer (IT-System to utilize for supply chain management) |
FEM | Finite Element Method; numerical technique for finding approximate solutions for partial differential equations; often used in industrial engineering |
| B | |||
| BRIC | Brazil, Russia, India, and China | ||
| G GDP |
Gross Domestic Product | ||
| C | |||
| CAD | IT-System often used in engineering/ | ||
| product development | I | ||
| Cap | Derivative to hedge against rising | IAS | International Accounting Standards |
| interest rates | IASB | International Accounting Standards | |
| CEO | Chief Executive Officer | Board | |
| CFO | Chief Financial Officer | IFRIC | International Financial Reporting Interpretations Committee |
| D | IFRS | International Financial Reporting Standards |
|
| DAX | Deutscher Aktienindex (German stock index) |
IfW | Institut für Weltwirtschaft (German economic organization) |
| DIN | Deutsches Institut für Normung | IMF | International Monetary Fund |
| (German Institute for Standardization) | IR | Investor Relations | |
| ISIN | International Securities | ||
| Identification Number | |||
| E | ISO | International Organization for | |
| EBIT | Earnings Before Interest and Taxes | Standardization | |
| EBITDA | Earnings Before Interest, Taxes and Depreciation/Amortization |
IT | Information Technology |
| EDP | Electronic Data Processing | ||
| K | |||
| kEUR | Thousand Euro |
List of Abbreviations
| $\sim$ | ||
|---|---|---|
| M MATS Mio. |
Mid-America Trucking Show Million |
U US USA USD |
United States of America United States of America US-Dollar |
|---|---|---|---|
| N n.a. |
Not applicable | W WKN |
Wertpapierkennnummer (security |
| O OEM OES |
Original Equipment Manufacturer Original Equipment Service |
WpHG | identification number) Wertpapierhandelsgesetz (German Securities Trading Act) |
| P PPA ppm |
Purchase Price Allocation Parts per million |
||
| R R&D |
Research and Development | ||
| S SDAX Swap |
Small-cap-DAX Hedging instrument in which two counterparties agree to exchange contractual rights and obligations (to swap) for a definite existing period of time in the future and at defined conditions |
Financial Calendar
March 11, 2016 Publication of Annual Financial Statements 2015 April 28, 2016 Annual General Meeting
SAF-HOLLAND GmbH Stephan Haas Hauptstraße 26 63856 Bessenbach Germany
Phone: +49 (0)6095 301-617 Fax: +49 (0)6095 301-102
Web: www.safholland.com Email: [email protected]
Financial Calendar and Contact Information Imprint
Responsible: SAF-HOLLAND S.A. 68–70, Boulevard de la Pétrusse L-2320 Luxembourg Luxembourg
Editorial deadline: November 4, 2015 Date of publication: November 5, 2015 Editorial office: blackpoint communications GmbH, Hagen, and SAF-HOLLAND GmbH, Bessenbach Design and realization: wagneralliance Kommunikation GmbH, Offenbach am Main Translated by: MBETraining & Translations, Wiesbaden Photography: Bernd Bodtländer, Frankfurt am Main Getty Images Deutschland GmbH, Munich
This report is also available in German.
This report contains certain statements that are neither reported financial results nor other historical information. This report contains forward-looking statements, which as such are based on certain assumptions and expectations made at the time of publication of the report. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond the Group's ability to control or estimate precisely, such as future market and economic conditions, the behavior of other market participants, the achievement of anticipated synergies, and the actions of government regulators. Readers are cautioned not to place undue reliance on these forward-looking statements, which apply only as of the date of this publication.
SAF-HOLLAND S.A. does not undertake any obligation to publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date of publication of these materials.
www.safholland.com
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