THIRD QUARTER 2020
- Sales declined organically by 19% and totaled SEK 964m (1,283). The downturn is mainly explained by COVID-19 and its impact on new manufacturing of trucks and trailers. The aftermarket was more stable.
- Adjusted operating income totaled SEK 58m (85), equivalent to an adjusted operating margin of 6.0% (6.6). Fixed costs decreased by a total of SEK 49m in the quarter. The structural savings programs of SEK 200 million in annual savings contributed SEK 26 million in the quarter. Full effect is expected to be achieved during the first half of 2021.
- Adjusted operating margin excluding investments in new technology was 6.6% (7.4).
- Reported operating income was SEK -23m (68). Non-recurring items of SEK 81m were charged against income for the quarter of which 70 are attributable to write downs of capitalized investments in the development of FABV.
- Income for the period totaled SEK -104m (37). Tax totaled SEK 75m (15), equivalent to a tax rate of +257 (28)%. The high tax rate is explained by deferred taxes related to deficits, was written down by SEK 55m.
- Earnings per share were SEK -2.15 (0.83).
- Operating cash flow totaled SEK 231m (76), and was positively impacted by lower inventories and increased accounts payable. Sale of the property in Heidelberg contributed SEK 54m to cash flow for the period, which totaled SEK 211m (15).
- Contract signed with the axle manufacturer Gigant for disc brakes in Europe.
Significant events after the quarter
- The Board decided to expand present savings program by SEK 100 million in annual savings, more information will be presented in connection with the year-end report.
- After an updated impairment test the Board decided to write down capitalized investments by SEK 70 million. The write down is a consequence of the decision to postpone the development of FABV due to OEM customer change of priorities.
Comment from Helene Svahn, President & CEO:
Clear recovery compared to Q2 and savings programs had positive impact on income
COVID-19 is continuing to squeeze people and communities. Haldex has escaped serious outbreaks of disease, but it has nevertheless been a challenging period. In spite of that, the organization has delivered and carried out necessary activities to adapt the business to the prevailing situation, and we see clear positive impacts on income, despite an unusually large loss of sales. A very sharp decline in OEM customers’ production volumes in the second quarter was followed by a gradual recovery in the third quarter. The recovery was driven by goods transportation by road returning relatively quickly to near-normal volumes.
Haldex’s net sales fell by 25% in the quarter and totaled SEK 964m. Sales were negatively impacted by the strength of the Swedish currency (SEK), with an organic decline of 19%, which was a clear improvement on the decline of -37% we saw during the second quarter. Uncertainty over the market trend for the remainder of 2020 remains high given the current spread of COVID-19. The industry anticipates that there will be a strong recovery in 2021, but that it will take a few more years to return to 2019 levels.
In terms of individual regions and customer segments, there were wide differences. Region North American faced another challenging quarter, with net sales declining organically by 26%. Region Europe, on the other hand, showed a stronger recovery, and the downturn compared to the third quarter of 2019 was -13%. Among customer segments, the aftermarket showed stability and recovery, but was nevertheless down 9%. Capacity utilization in the existing vehicle fleet has been consistently high, leading to increased demand for servicing and spare parts. The trailer segment also improved substantially compared to the second quarter, but sales were nevertheless 18% lower than in the third quarter of 2019. Sales regarding new production of trucks and buses had another challenging quarter, and sales fell by 42%. The weak trend for the truck segment is chiefly explained by continued economic uncertainty due to COVID-19, effects of a previously reported lost contract in North America and a global decline in bus transportation.
savings programs show effect and are expanded by SEK 100m
Work aimed at strengthening our financial position and competitiveness is continuing. Existing programs are going according to plan, and fixed costs decreased by SEK 49m in the quarter, of which the structural savings programs accounted for SEK 26m. For the full year 2020 we estimate fixed costs to decrease SEK 140m.
In line with our objective to attain an adjusted operating margin of 10% the Board today decided to extend existing savings program with SEK 100m. We now have to work out the details for the increased savings.
Substantially lower revenues during the quarter was supported by a lower cost level and we achieved a positive adjusted operating income of SEK 58m (85), equivalent to an adjusted operating margin of 6.0% (6.6). The closure of Blue Springs led to SEK 8m in increased non-recurring costs. Cash flow also developed favorably thanks to increased profit, as well as lower capital tied up and sale of the property in Heidelberg, bringing in SEK 54m. The target to achieve an adjusted operating margin excluding investments in new technology of 10% is within reach, but is dependent on the market returning to the volumes that applied before the COVID-19 pandemic.
PLAN FOR LONG-TERM VALUE CREATION
Work on developing Haldex’s long-term strategy is ongoing. The goal is to strengthen our position as a global niche player. Customers appreciate Haldex’s presence and position in the market, but price competition is tough, and we must ensure that our proposition creates long-term added value. Our structural measures to make production more efficient have taken us some way forward, and we are now working to develop and hone our proposition, so that it is focused on profitable products. To achieve this we have to rationalize the value chain and lower material expenses.
The investments in developing our proposition to the trailer segment and in the aftermarket continued. Investment is focused on niches where we see that Haldex has clear competitive advantages and where our proposition of flexibility, close customer relationships and an open architecture in our innovative brake solutions make a difference.
Customers’ focus on electric operation was strengthened, and investments in the development of autonomous vehicles have been given lower priority. Our investments in new technology must reflect our customers’ priorities, and in the current situation we have decided to postpone the development of FABV and increased our focus on developing the electromechanical braking system (EMB) for heavy vehicles. After an updated impairment test the Board decided to write down capitalized investments by SEK 70 million.
Customers are showing great interest in EMB, and at the end of September we signed a contract with a global truck manufacturer based in Europe regarding a test installation. The order has a marginal impact on income but is strategically important. With this contract we have two global OEMs based in Europe evaluating EMB, and a number of test installations in China. The outcome from each test installation will be known within a few years from the start of testing and we hope to launch EMB in China in 2021.
SALES, CUSTOMERS AND PARTNERSHIPS
To summarize, I am satisfied with the trend in the third quarter. We are achieving positive earnings despite substantially lower sales, and we are strengthening our position in the aftermarket in North America and on the trailer market in Europe. The contract with the axle manufacturer Gigant for disc brakes represented an important milestone. I look forward to more strategic partnerships that boost our proposition with increased volumes and improved profitability. I am also looking forward to the launch of our new EBS during the first quarter of 2021.
Last but not least, I would like to thank all the employees for their commitment despite these challenging times.
President and CEO
For further information, visit https://haldex.com/sv/corporate/investerare/ or contact:
Helene Svahn, President & CEO, Phone: +46 418-476000
Lottie Saks, CFO, Phone: +46 418-476000
This information is information that Haldex AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation. The information was submitted for publication, through the agency of the contact persons set out above, on Thursday, October 22, 2020 at 7:20 CEST.
Full interim report
The full interim report is available at http://www.haldex.com/sv/corporate/investerare/finansiella-rapporter/ or at http://news.cision.com/haldex
Press and analyst meeting
Media and analysts are invited to a telephone conference at which the report will be presented with comments by Helene Svahn, President & CEO and Lottie Saks, CFO. The presentation will also be webcasted live and you can participate with questions by telephone.
Date & Time: Thursday, October 22 at 13:00 am CEST
The press conference is broadcasted at: https://financialhearings.com/event/12391
The webcast will also be available afterwards and you can download the Interim report and the presentation from Haldex website.
The interim report is essentially a translation of Swedish language original thereof. In the event of any discrepancies between this translation and the original Swedish document the latter shall be deemed correct.
Haldex (www.haldex.com), headquartered in Landskrona, Sweden, is a provider of proprietary and innovative solutions to the global commercial vehicle industry, with focus on products in vehicles that enhance safety, environment and vehicle dynamics. Haldex is listed on the Nasdaq OMX Stockholm Stock Exchange and had net sales of approx 5.0 billion SEK in 2019. The number of employees amounts to about 2,200