Equipment specialist, SAF-Holland, has published its financial figures for the first half of 2020.
“In a market environment that is dominated by the global spread of the Covid-19 pandemic, we managed to generate a positive adjusted EBIT margin of 2.7 per cent in the second quarter of 2020 despite a 44.8 per cent fall in sales,” said SAF-Holland Chairman of the Management Board, Alexander Geis.
“With an adjusted EBIT margin of 5.0 per cent at the end of the first six months of 2020, we are lying at the upper end of the guidance range for the full year 2020 of between 3.0 per cent and 5.0 per cent.
“In addition to the high-margin spare parts business, which is resistant to economic cycles, the global program to reduce our selling and administrative costs initiated at the end of September 2019 already and the supplemental collective agreement for the Bessenbach location that came into force on March 1, 2020 contributed to the good development in earnings from operations.
“Our investments in property, plant and equipment and intangible assets consistently focus on the long-term strategic initiatives in the field of operational excellence, which will lead to a decline in the capex ratio to a level of around 2.5 per cent both in the current financial year and the following years,” he said.
Group sales were significantly down on the previous year due to market conditions and corona; adjusted EBIT margin of 5.0 per cent
Due to market conditions and coronavirus Group sales in the first half of 2020 came to €476.3 million, 31.5 per cent below the previous year's level of €695.5 million. The additional sales contributed by the entities acquired since January 2019 amount to €1.6 million. Currency effects amounted to €-0.8 million and resulted primarily from currency changes of the US dollar against the Euro as well as of the Brazilian real against the Euro. Consequently, after eliminating the effects of exchange rates and acquisitions, sales decreased by 31.6 per cent to €475.5 million.
Despite the sharp decrease in sales, SAF-Holland generated an adjusted EBIT of €23.7 million in the first half of 2020 (previous year: €49.9 million). This corresponds to an adjusted EBIT margin of 5.0 per cent (previous year: 7.2 per cent). The deterioration of the margin is attributable to the cost stickiness effect and impairment losses of €5.6 million recorded on inventories. The cost-savings realised in selling and administrative expenses had a positive effect.
The adjusted net profit for the first half of 2020 of €12.7 million (previous year: €33.0 million) lies 61.6 per cent below the previous year's level. Based on unchanged approximately 45.4 million ordinary shares outstanding, adjusted basic earnings per share for the reporting period from January to June 2020 amounted to €0.28 (previous year: €0.73) and adjusted diluted earnings per share amounted to €0.25 (previous year: €0.61).
Capex ratio reduced to 2.5 per cent.
Additions to property, plant and equipment and intangible assets, including capitalised development costs of €1.9 million (previous year: €2.4 million), totalled €11.8 million in the first half of 2020 (previous year: €24.2 million). This breaks down into €4.2 million (previous year: €8.0 million) for the EMEA region, €5.0 million (previous year: €11.2 million) for the Americas region and €2.6 million (previous year: €5.0 million) for the APAC region. The focus of investing activities was on the further automation of production processes at various locations in the Americas region and Germany. The capex ratio fell from 3.5 per cent to 2.5 per cent.
Number of employees adjusted to the market environment.
As of 30 June 2020 SAF-Holland employed 3,042 people worldwide (previous year: 3,925 employees). Compared to the previous year, the number of employees has therefore decreased by 22.5 per cent. The reduction in the headcount was spread over all regions in order to address the changed market conditions.
Positive operating free cash flow.
The net cash flow from operating activities in the first half of 2020 came to €22.5 million, falling below the level of the comparable period of the previous year of €27.6 million. The decrease is mainly due to the sharp deterioration in earnings before tax. The positive contribution from working capital management of €13.0 million could only compensate this effect to some extent. It should be noted that the volume of factoring decreased from €39.3 million in the previous year to €26.9 million in the reporting period from January to June 2020.
The net cash flow from investing activities in property, plant and equipment and intangible assets of €-11.4 million lay €11.4 million, or 50.2 per cent, below the comparable figure for the previous year.
The operating free cash flow improved from €4.8 million to €11.2 million. The total free cash flow of €-10.0 million (previous year: €-7.6 million) was affected by the cash outflow associated with the purchase of the remaining shares in V.Orlandi of €21.2 million.
Net financial debt (including lease liabilities) increased by €27.2 million to €278.9 million as of 30 June 2020 compared to the reporting date of 31 December 2019. As of 30 June 2020 SAF-Holland carries cash and cash equivalents of €209.4 million (31 December 2019: €131.2 million).
“We have total liquidity – measured as the sum of freely available lines of credit on the closing date and cash on hand – of €412.0 million (31 December 2019: €242.7 million) and therefore stand on a very robust financial cushion,” said Geis. “With our Cash-is-King project, that primarily addresses past-due receivables and the management of inventories, we are on track. As a result, we will free up additional liquidity by the end of the year, which will enable us to keep the company on a stable course, even through these troubled times.”
EMEA region: Adjusted EBIT margin remains robust despite Covid-19.
In the EMEA region, sales declined in the first half of 2020 by 23.0 per cent to €267.9 million (previous year: €348.0 million) due to market conditions and corona. The entities acquired since January 2019 contributed an additional €1.6 million to sales. Organic sales fell by 22.9 per cent to €268.2 million.
Despite the significant sales decline, the EMEA region generated an adjusted EBIT of €21.5 million in the reporting period from January to June 2020 (previous year: €33.9 million) and an adjusted EBIT margin of 8.0 per cent (previous year: 9.7 per cent). The spare parts business had a strongly positive impact on the gross margin whereas the OE business had a slightly negative impact. The deterioration of the margin is attributable to the cost stickiness effect and impairment losses of €2.5 million recorded on inventories in response to the decrease in inventory turnover because of the Covid-19 pandemic. The cost-savings realised in selling and administrative expenses had a positive effect.
Americas region: EBIT margin positive despite massive slump in sales.
In the Americas region, sales declined in the first half of 2020 by 36.1 per cent to €174.1 million (previous year: €272.6 million) due to market conditions and corona. After eliminating the effects of exchange rates, sales decreased by 36.8 per cent to €172.3 million.
Despite the significant fall in sales, the Americas region generated a positive adjusted EBIT of €4.5 million in the first half of 2020 (previous year: €18.2 million) and an adjusted EBIT margin of 2.6 per cent (previous year: 6.7 per cent). The spare parts business had a positive impact on the gross margin whereas the OE business had a significantly negative impact.
The deterioration of the margin is attributable to the cost stickiness effect and impairment losses of €3.3 million recorded on inventories due to streamlining the product portfolio as well as the decrease in inventory turnover as a result of the Covid-19 pandemic. The cost-savings realised in selling and administrative expenses had a positive effect.
In addition it should be noted that the figure in the previous year of €18.2 million significantly benefited from the contractually agreed passing on of the rise in the price of steel in 2018 coupled with lower purchase prices for steel.
APAC region: Lockdown represents a great burden.
The APAC region generated sales of €34.2 million in the first half of 2020 (previous year: €74.9 million) due to market conditions and Covid-19. After eliminating the effects of exchange rates, sales decreased by 53.3 per cent to €35.0 million in a year-on-year comparison. The reason for this sharp contraction in sales was mainly the lockdown in India and Singapore, which lasted a number of weeks, the ceased export business as a result of the trade dispute between China and the US and the delay in ramping-up the new Chinese plant in Yangzhou due to Covid-19.
Adjusted EBIT of €-2.4 million is down slightly on the result of the previous year of €-2.2 million. The adjusted EBIT margin amounted to -6.9 per cent (previous year: -2.9 per cent). The spare parts business had a positive impact on the gross margin whereas the OE business had a significantly negative impact. The cost-savings realised in selling and administrative expenses had a positive effect.
Outlook for the 2020 financial year confirmed.
In light of the expected macroeconomic environment and the sector-specific framework conditions and after weighing up the risk and opportunity potentials (including the currently foreseeable impact on business from the corona pandemic) the Management Board of SAF-Holland SE continues to expect a decrease in Group sales on 2019 of 20 to 30 per cent for the 2020 financial year compared to 2019.
Under this assumption, SAF-Holland is still expecting an adjusted EBIT margin of between 3.0 per cent and 5.0 per cent for the 2020 financial year. The higher shares of sales of the spare parts business is helping to stabilise the margin. On the other hand, factors burdening the margin are the OE business and the relatively below-average decline in selling and administrative expenses as the savings measures that have been initiated will be fully effective in the further course of the year.
In order to support the strategic objectives, SAF-Holland is planning investments of around 2.5 per cent of Group sales in the 2020 financial year (previously around 3.0 per cent). These will focus primarily on continuing the introduction of a Global Manufacturing Platform, further automation and the program FORWARD 2.0.
The exact commercial impact of the current Covid-19 pandemic on SAF-Holland however can still not be precisely identified or reliably quantified.
(Image: SAF-Holland site in Bessenbach.)