Based on preliminary figures, SAF-HOLLAND exceeds 2017 sales target and achieves operating earnings target - continued sales growth and earnings improvement in 2018 planned
Based on preliminary figures, SAF-HOLLAND exceeds 2017 sales target and achieves operating earnings target - continued sales growth and earnings improvement in 2018 planned
- 2017 Group sales of EUR 1,138.9 million (py: EUR 1,042.0 million), organic growth of 9.3%
- Adjusted EBIT 2017 of EUR 91.2 million slightly above prior year (EUR 90.4 million) despite renewed additional operating expenses in the US in the fourth quarter
- Adjusted EBIT margin of 8.0%
- 2018 outlook: Group organic sales projected to grow 4% to 5%, adjusted EBIT margin expected in the range of 8% to 8.5%
Group sales exceed expectations
Luxembourg, February 26, 2018 - SAF-HOLLAND S.A. ("SAF-HOLLAND"), the supplier to the trailer, truck and bus industries has once again exceeded its target raised in early October 2017 for organic sales in 2017 in the range of EUR 1,125 million and EUR 1,135 million. Based on preliminary consolidated figures, Group sales in the past financial year increased 9.3% to EUR 1,138.9 million (py: EUR 1,042.0 million). A positive consolidation effect from the purchase of the Brazilian company KLL offset negative currency effects taking organic sales growth to 9.3%.
Acceleration in organic sales growth in the fourth quarter of 2017
In the period from October through December 2017, organic sales momentum versus the previous quarter (Q3 2017: +9.6%) accelerated again with reported sales increasing 8.6% to EUR 274.2 million (py: EUR 252.6 million). This figure includes negative currency translation effects in the amount of EUR 11.4 million. The Group achieved organic sales growth of 13.1%.
Sharp increase in demand in the United States during plant consolidation and ramp-up of the new plant network necessitate additional expenses
Preliminary figures show that the Group's adjusted EBIT in the 2017 financial year reached EUR 91.2 million and slightly exceeded the previous year's figure (EUR 90.4 million). The reported Group EBIT 2017 amounted to roughly EUR 72.7 million (py: EUR 78.4 million) and included one-time restructuring expenses totaling EUR 13.2 million (py: 6.6 million) and negative purchase price allocation effects of around EUR 5.3 million (py: 5.3 million). The adjusted Group EBIT margin amounted to 8.0% (py: 8.7%) and was at the lower end of the forecast range specified in early October 2017 (margin to tend towards the lower end of the 8-9% range) as expected, even though the costs in the Americas region during the second half of the year 2017 were significantly higher than planned. One-time restructuring costs in the course of the consolidation of the US plant network, particularly for the relocation of production from the locations in Holland and Muskegon (both Michigan) to the Cincinnati (Ohio), Warrenton (Missouri), Dumas (Arkansas) and Wylie (Texas) locations were related to relocation expenses, severance payments and impairment on machinery and tools in the amount of EUR 10.9 million, which were added back in the calculation of the adjusted EBIT.
Besides, noticeably higher than expected dynamic growth in demand from original equipment customers in North America, which coincided with the relocation measures of the US plant consolidation and the resulting temporary capacity constraints, led to significant production inefficiencies. As a result, the Company incurred unplanned, temporary additional expenses of EUR 4.0 million in the third quarter and EUR 6.3 million in the fourth quarter of 2017, which were fully recognized in profit or loss and had an equally adverse impact on the Group's gross profit, EBIT and adjusted EBIT. Managing the high volumes in production required a higher number of employees than originally planned and a distinct increase in express forwarding and logistics costs. At the end of the year 2017, SAF-HOLLAND made compensation payments under supply agreements amounting to EUR 1.1 million, which are part of the additional operating expenses described before. Overall, according to preliminary figures, the Americas region, based on a rise in total organic sales of 11.0% and an increase of 13.7% in the US OE business, in the fourth quarter of 2017 posted negative adjusted EBIT in the amount of EUR -3.9 million (py: EUR 5.7 million). Reported sales revenue in the region in the fourth quarter 2017 reached EUR 94.1 million (py: EUR 92.6 million). A renewed increase in steel prices and restraints in supplying the aftermarket also burdened.
Strong sales and earnings development in the EMEA/I and APAC/China regions
Unplanned additional expenses in the Americas region were partially offset by strong sales and earnings development in both the EMEA/I and APAC/China regions. In the final quarter of 2017 in the EMEA/I region the company benefitted from positive effects on the cost of materials as a result of attaining specific purchasing volumes in the amount of approx. EUR 4.5 million. The Group's overall adjusted EBIT of EUR 18.5 million (py: EUR 19.8 million) for the seasonally usually weaker fourth quarter of 2017, came in 6.6% lower as compared to the same quarter of the previous year. As a result, the adjusted EBIT margin of the Group for the same period amounted to 6.7% (py: 7.8%).
2018 outlook: Continued sales growth and gradual earnings improvement
For 2018, SAF-HOLLAND expects sales growth to continue, supported not only by a further recovery in the North American market but also the Group's strong growth in China. The Company is currently profiting in China from stricter transportation regulation and recently recorded several major orders. Overall, SAF-HOLLAND expects to be able to expand the Group's organic sales by 4% to 5% during the 2018 financial year.
With the closure of the plant in Holland at the end of September 2017 followed later by the plant in Muskegon at the end of December 2017, the consolidation of the North American plants was completed by the end of 2017. Now in the first few months of 2018, the focus of actions will be on a successive reduction in the high start-up costs of the restructured plant network and reestablishing an optimal alignment of the capacity planning and logistics processes with the production processes. There should also be a decline in the temporarily higher number of employees and increased express freight and logistics costs. The coordination of the new plant network continues to be accompanied by dynamic demand from original equipment customers. Nevertheless, this demand will become increasingly easier to master as the year progresses. As a result, until the reduction in the existing production start-up inefficiencies will have been completed, the Company still expects to incur additional operating expenses affecting in essence the first quarter of 2018. Therefore SAF-HOLLAND expects the Americas region to see a successive improvement in its cost structure and profitability over the course of 2018.
Also supported by the expected continued solid earnings performance in the EMEA/I and APAC/China regions, from today's perspective, SAF-HOLLAND anticipates the Group's adjusted EBIT margin for full-year 2018 to be within a range of 8% to 8.5%. Due to the projected development in the Americas region, the Company expects profitability to increase but successively and estimates the Group's adjusted EBIT margin in the first half-year to come in at a lower level when compared to the second half-year of 2018.
Positive effects on net income in 2018 expected
In addition to the projected improvement in the adjusted EBIT, SAF-HOLLAND anticipates additional positive effects on the net result for the period of 2018. Accordingly the company for the 2018 financial year expects a disproportionate increase in the net result when compared to the adjusted EBIT trend. End of April 2018, a EUR 75 million corporate bond issued in 2012, yielding 7%, will mature. The bond is to be redeemed from existing cash. Taking into account full redemption from cash at hands, as of May 2018, pro rata net interest savings of just over EUR 3.0 million before taxes will be realized. In addition, for the fiscal year 2018, SAF-HOLLAND projects a lower US income tax rate of around 23%. Depending on the future earnings development of the US operations, this is expected to have a positive effect in the form of a corresponding reduction in the tax expense in the US.
SAF-HOLLAND S.A. will present its detailed audited results for the 2017 financial year on March 16, 2018.
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