Intensifying operational focus

SAF-Holland CEO, Alexander Geis, who was appointed at the end of February 2019, has reported that the Group significantly exceeded its sales target, which was most recently adjusted in October 2018.

The agenda of the new CEO consists of three points. Following an unsatisfactory earnings trend in the Americas region in FY’18, the equipment specialist is accelerating the reorganisation of its US business with a project dubbed ‘FORWARD’.

The focal points of this project, according to Geis, include the optimisation of the production and supply chains, the product portfolio, the aftermarket business and the purchase of materials.

Meanwhile, in order to position itself successfully for further growth opportunities in the Chinese market, SAF-Holland has set up an experienced team of experts to support local management during the start-up of the new plant in Yangzhou and the integration of all other Chinese plants into the Greenfield project.

In a third series of measures, SAF-Holland intends to look at the more efficient use of its net working capital across the Group, particularly through the stricter management of inventories and receivables. After years of recording strong sales growth, SAF-Holland’s priority in the current financial year will be on achieving operational excellence to support its long-term growth strategy.

At €1.301 million, Group sales in the 2018 financial year were 14.2 per cent higher than the previous year’s figure of €1.139 million. Organic growth reached 12.2 per cent for a total of €1,278 million. V.Orlandi, York Transport Equipment and Axscend, which were consolidated for the first time in the reporting year, contributed sales of €70.9 million. Currency effects had a negative impact of €40.8 million.

The Group’s adjusted earnings before interest and taxes (adjusted EBIT) amounted to €89.6 million (previous year: €91.2 million). This decline was mainly due to the significantly lower result of the Americas region. As a result, the adjusted EBIT margin was 6.9 per cent, which was below the previous year’s figure of 8.0 per cent.

The adjusted result for the period increased by 5.3 per cent to €55.5 million (previous year: €52.7 million) due to an improvement in the finance result and a lower tax rate. Adjusted basic earnings per share amounted to €1.22 (previous year: €1.16), and diluted adjusted earnings per share equalled €1.05 (previous year: €1.00).

Based on the expected macroeconomic and industry environment and weighing the potential risks and opportunities for the 2019 financial year, the Group Management Board of SAF-Holland expects sales at the Group level to grow in a range of 4 to 5 per cent.

From today’s perspective, SAF-Holland expects an adjusted EBIT margin around the midpoint of the range of 7 to 8 per cent for full-year 2019 (previous year 6.9 per cent). This assumption is based, in part, on the expectation of continued solid earnings performance in the EMEA, China and APAC regions. It is also based on the Company’s anticipation of further reductions in start-up costs for the restructured plant network in the Americas region in 2019, as well as a simultaneous optimisation in the process chains and integration of capacity planning and logistics processes.

An interview with Alexander Geis

Global Trailer sat down Alexander Geis to learn more about his career trajectory and professional vision for SAF-Holland.

Q: You have been with SAF-Holland for more than two decades. Since July 2011, you have been a Board member and in 2016 you were made President of the EMEA region. Can you describe your professional journey with SAF-Holland?

A: In 1992, I joined Sauer Achsen Fabrik (SAF), and I initially completed an apprenticeship as an industrial clerk. In 2001, as the head of the service/spare parts department, I took on my first management task. From that point on, my role went uphill quickly.
Between 2009 and 2016, as head of the Aftermarket division, I expanded the spare parts business into an internationally successful branch of SAF-Holland. I have been a member of the Group Management Board since July 2011 and President of the EMEA region since January 2016. In this capacity, I have been able to decisively strengthen the European business and developed it into the company’s most profitable region. I am very proud of this achievement. Since the end of last year, I have also been responsible for global purchasing at the SAF-Holland Group as the Chief Procurement Officer.

Q: Board Chair, Martina Merz, has stated that you have exactly the right skills needed in the next phase of SAF-Holland’s corporate development. Do you agree? What does the future potentially hold for SAF-Holland?

A: When Martina Merz asked me if I could envision succeeding Detlef Borghardt, I did not hesitate a second. It is a great honour for me to be able to actively shape the further business development of SAF-Holland – a company I have been with for more than 25 years – in this outstanding position. I have a great team working with me helping to unlock our organisation’s full potential and continue on our successful path.

Q: The Management Board at SAF-Holland say that you will be focusing on stabilising the North American arm of the business and developing a long-term ‘Strategy 2025’ to promote further growth for the business. Can you unpack these ideas for us? What can you tell us?

A: The overall situation in the North American plant network has improved in the first quarter of 2019. SAF-Holland launched the project FORWARD on 1 March 2019 to systematically realise the significant optimisation potential identified and drive forward the turnaround. The focus is on the optimisation of the production and supply chains, the product portfolio, the aftermarket business and the purchase of materials. We are still at the beginning of the strategy development process. The kick-off meeting took place in the US at this year’s Leadership Conference held at the end of March. Currently, our plan is to provide information to the broader public about ‘Strategy 2025’ in the first half of 2020.

Q: Former CEO, Detlef Borghardt, played his part in ensuring SAF-Holland reached the position of the world’s largest manufacturer of trailer axles in 2018. Can you tell me how SAF-Holland under your leadership will maintain this market lead?

A: Under Detlef Borghardt’s leadership, the SAF-Holland Group has become one of the world’s leading suppliers of truck and trailer components. Today, we have major manufacturing facilities in Europe, North America and China, with our spare parts and service network operating in almost every market worldwide. Under my leadership, we will work even more intensively on our existing core markets – Europe and North America – and build and expand China with the new Greenfield project, thereby laying the foundations for future organic growth. We are also continuing to look for companies with whom we can further expand our product and technology portfolio and our market coverage.

Q: SAF-Holland’s purchase of Stara Group demonstrates a strong track record for expansion and further growth. Can you elaborate on this?

A: We were very active in the area of M&A last year, particularly in reference to our acquisition of V.Orlandi in Italy, York Transportation Equipment in India and Axscend in the UK. The V.Orlandi acquisition strengthened our no. 2 position in fifth wheel couplings in Europe while expanding our market presence in this segment around Russia, the Middle East and Australia. At the same time, SAF-Holland has thereby increased its specialty business with couplings and drawbar eyes for trailers and specialised commercial vehicles in areas such as industry, agriculture, forestry and mining. The York acquisition has facilitated our entry into the attractive Indian and Asian Pacific markets for trailer axles, trailer suspension systems and components.
With our acquisition of Axscend in the UK, the focus was on expanding our technology portfolio with digital trailer applications. With the acquisition of the Stara Group, we were able to purchase our former distributor for trailer axles and suspension systems in Finland and Sweden as of 1 February 2019. As previously mentioned we continue to monitor the market and will make acquisitions when we believe it makes sense.

Q: International expansion has been a major trend for SAF-Holland, driving sales in Europe, North America, China and Asia. Do you have any comments to share about this worldwide growth in general?

A:  In general, the trailer markets in Western Europe and North America have reached their limit in terms of number of units. In these markets, we intend to continue growing by increasing the content per trailer and growing our spare parts business. We expect above-average growth in the medium to long term, particularly in the BRIC and NEXT 11 countries (Egypt, Bangladesh, Indonesia, Iran, Nigeria, Pakistan, the Philippines, Mexico, South Korea, Turkey and Vietnam). Our expansion, which includes the Greenfield in China and the acquisition of York in India, should be seen in this context.

Q: SAF-Holland announced in February 2019 that it joined the UN Global Compact – the largest initiative responsible for corporate governance. How vital is this initiative for SAF-Holland? Do you have any other comments to share regarding SAF-Holland’s sustainability goals?

A: We see our commitment to the United Nations’ largest global initiative for responsible corporate governance as an important step towards strengthening SAF-Holland’s long-term commitment to sustainability. Being a global company presents added challenges such as respecting human rights in the supply chain, and more. With this in mind, we made the decision to revise and adapt our Code of Conduct and join the UN Global Compact. This is how we intend to demonstrate and make certain that our sustainability principles apply everywhere and that we can see the progress we have achieved. We have realised that our aim to develop the best products for our customers, our society and our environment, goes hand-in-hand with developing the most innovative solutions. SAF-Holland achieves this by taking a holistic view of the entire value chain. Our sustainability strategy includes both the efficient use of resources in production and the continuous analysis and optimisation of processes to determine their effect on climate and environment. Because our products have their largest environmental impact during their service life, we have also made this one of our focal points. Here is where our claim of ‘best-in-class’ takes tangible form as we enable our customers to save fuel using our lightweight concepts, lower their direct costs and reduce downtimes due to the exceptional longevity and durability of our products.
With sustainable products and efficient production processes, we bring together economy and ecology. This not only helps us save resources and conserve the environment but also creates financial benefits for our company.

Q: Are there any new products or strategies that you are excited about? Please elaborate.

A: Here I would like to highlight our telematics and connectivity specialist Axscend in the UK, which we acquired in July 2018. This company designs solutions to manage trailers entirely digitally, enabling fleet operators to achieve appreciable cost advantages and efficiency gains. With the patented TrailerMaster Connect Connectivity solution, an intelligent interface for the joining technology that is typically equipped with a telematics unit, each trailer can be upgraded or retrofitted to a smart trailer with numerous databased functionalities.
The second exciting topic that comes to my mind is lightweight construction. In the past few years, we have been able to achieve massive weight savings with our trailer axles – and this process is far from complete.
In terms of products, I would like to point out our electrified trailer axles. Our SAF TRAKr works as a generator with a power of 30 kilowatts, which can quickly go up to 50 kilowatts during braking. The power generated can be used to operate equipment that uses electricity, such as the refrigeration unit. The SAF TRAKe temporarily relieves the tractor’s drive with a maximum output of up to 120 kilowatts.

Q: Have you observed any particular market trends worth noting?

A: Over the past few years, the licensing regulations for commercial vehicles in China have been made significantly more stringent. After the implementation of previous restrictions in earlier years regarding the maximum weight, total weight per axle and the dimensions of a road train, stricter safety regulations came into force at the beginning of 2019. After a one-year transition period, the GB 7258 standard has now made the installation of disc brakes for the transport of dangerous goods mandatory since 1 January 2019. According to this standard, the front truck axles and all trailer axles need to be equipped with disc brakes.
Starting on 1 January 1 2020, the rear truck axles and all trailer axles for Dangerous Goods transportation will also need to be equipped with air suspension systems. These regulations will also apply to all trailers with sidewalls and grid structures. SAF-Holland is well positioned with its weight-saving components and its range of air suspensions and axle systems with powerful disc brake technology for the relevant demand.
A second important trend for us is emerging in the US. Whereas the majority of trailers in Europe have been equipped with disc brakes for several years, just over 20 per cent of trailers use disc brakes in the US.
The US is still dominated by the traditional drum brake, which is clearly inferior in terms of performance, weight and ease of maintenance. Also, from a safety standpoint, disc brakes have clear advantages as they feature better braking performance. For example, the braking distance for a truck equipped with disc brakes is reduced by 20 per cent from 129 metres to 104 metres at a speed of 75 km/h.
In the medium term, the share of disc brake technology in the US is anticipated to increase to 30 to 35 per cent. SAF-Holland has been playing a pioneering role in the European market for years and has extensive knowledge. With the use of disc brake technology in its axle systems, the Group can increase its value-add per vehicle by 50 per cent or more.
A third trend I see is the addition of telematics systems to the trailer. The most important integration functionalities include lighting function control, load testing and optimisation, data evaluation from tire pressure monitoring systems and EBS, patented performance data and the status evaluation of the brake system. We recognised the accompanying business potential early on and therefore acquired the British telematics and connectivity specialist Axscend last year. The system developed by founder Tim Steer and his experts sends important trailer data from the brakes, lights and tires, for example, to an app that informs fleet managers in real time about the condition of their fleet.

Q: Do you have any other comments you would like to share?

A: I would like to say a brief word about digitisation. For SAF-Holland digitisation means on the one hand combining our mechanical products with sensors and electronics, i.e. the integration of electronic intelligence into our axles, suspensions and fifth wheels. This connection is absolutely necessary in order to first make automated driving possible and then to make it a reality. Another aspect of digitisation is the intelligent combination of our systems and the evaluation of the data obtained. Among other things, this enables us to monitor the wear of components, such as brake pads, and avoid causing any damage to the trailer. This is further accompanied by optimising the maintenance intervals and minimising corresponding downtime. Fleet operators also receive accurate real-time information about the position of the trailer and the load and condition of the cargo. Having access to this information allows the operators to better optimise their route and service planning. Our customers are the focus of everything we do.

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