Haldex interim report, January - September 2016: Solid operating margin in spite of continuing weak market conditions

Market conditions continued to be weak in North America in Q3, which was the main factor contributing to lower sales. Disc brake sales increased significantly, but did not compensate for lower actuator and brake adjuster sales. The company’s operating margin is in line with previous quarters of this year in spite of lower net sales. Earnings per share for the first nine months of the year were also up compared with the same period of the previous year.

Net sales for Q3 totaled SEK 1,076 (1,189) m, equivalent to a 10% decrease compared with the same period of the previous year. After currency adjustments, net sales also decreased by 10% in Q3. Currency-adjusted net sales fell by 10% for the first nine months of the year.

Operating income for Q3 excluding one-off items amounted to SEK 80 (116) m, which is equivalent to an operating margin of 7.4 (9.7)%. The operating margin excluding one-off items for the first nine months of the year amounted to 7.3 (9.9)%. The operating margin including one-off items was 6.3% for Q3 and 6.9% for the first nine months of the year.

The net income after tax for Q3 totaled SEK 37 (-22) m and the earnings per share for Q3 totaled SEK 0.82 (-0.50). The earnings per share for the first nine months of the year came in at SEK 3.29 (3.20) per share.

Cash flow from operating activities totaled SEK 65 (133) m in Q3 and SEK 168 (109) m for the first nine months of the year.

A bidding process for Haldex was initiated on July 14 and is still ongoing. Three companies have submitted bids with different price levels. At the time of publication of this interim report, a bid from Knorr-Bremse for SEK 125 was still valid.

Bo Annvik, President & CEO, has given the board notice of resignation. He will remain in his position for the time being. Three positions on Haldex's management team were filled in the quarter: SVP North American Sales, SVP Product Management and SVP R&D.

Key figures for July - September 2016
(same period previous year in brackets)

•  Net sales, SEK m   1,076 (1,189)
•  Operating income, excl. one-off items, SEK m   80 (116)
•  Operating income, SEK m   68 (8)
•  Operating margin, excl. one-off items, %   7.4 (9.7)
•  Operating margin, %   6.3 (0.7)
•  Return on capital employed, excl. one-off items,%1    14.6 (23.3)
•  Return on capital employed,%1   14.1 (14.3)
•  Net income, SEK m   37 (-22)
•  Earnings per share, SEK   0.82 (-0.50)
•  Cash flow, operating activities, SEK m   65 (133)
  
  

1)     Rolling twelve months

Key figures for January - September 2016
(same period previous year in brackets)

•  Net sales, SEK m   3,320 (3,725)
•  Operating income, excl. one-off items, SEK m   244 (368)
•  Operating income, SEK m   232 (256)
•  Operating margin, excl. one-off items, %   7.3 (9.9)
•  Operating margin, %   6.9 (6.9)
•  Return on capital employed, excl. one-off items,%1    14.6 (23.3)
•  Return on capital employed,%1   14.1 (14.3)
•  Net income, SEK m   147 (143)
•  Earnings per share, SEK   3.29 (3.20)
•  Cash flow, operating activities, SEK m   168 (109)
  
  

1) Rolling twelve months 

Comment from Bo Annvik, President and CEO: 

“Q3 was largely characterized by the bidding situation Haldex is currently undergoing. The primary focus will be to continue driving the business toward agreed targets and in accordance with the strategy previously adopted, in order to ensure that we retain our sales and profitability. The outcome in Q3 was in line with the previous quarters of this year. Market conditions in North America continued to be weaker, which is impacting our sales significantly. The operating margin was at par with previous quarters, which is at a reasonable level given our current net sales.

North America

The official forecast for the number of vehicles produced in North America has deteriorated quarter after quarter, which is in line with our own estimates. Similarly to previous quarters of this year, about half of the sales decline we experienced in Q3 was related to actuators. This is primarily related to our strong position in Truck, which experienced the greatest decline in North America, and was only partially related to the product recall. We can also see a decrease in brake adjuster sales due to the weaker market conditions.

Our disc brake continues to garner attention in North America. We are continuing to sign small contracts and are working hard to secure a major contract on the US market in the trailer segment by the end of the year, which would be of major strategic value to us.

Products driving growth

Disc brake sales increased significantly during the quarter. This is in line with previously announced expectations that this product category would be on the rise this year and then gradually reach even higher volumes over the coming years. In addition, EBS sales have risen, which is another promising product for Haldex in which major product development investments are being made. It is very exciting to see that both of these product areas, in which we invest development resources, are growing in terms of net sales.

Major quality improvements efforts have been made internally in the wake of the product recall, which impacted Haldex significantly since late 2014. Haldex has analyzed its product portfolio to aim for our products to not only meet industry safety standards, but clearly exceed them. As a part of this process, we decided to further validate the actuator that was the cause of the product recall and launch it early next year instead of in the fall. We must ensure that the product we are launching now exceeds customer expectations in every way.

Collaboration on electromechanical breaks

In Q2, we announced a joint venture with Chinese VIE. We will jointly develop electromechanical brakes for electrical commercial vehicles. This joint venture took several steps forward in Q3. Staff has been recruited, premises have been commissioned and testing of various prototypes has commenced. We have great confidence in the future of this joint venture and how we can develop products for this rapidly growing market.

Uncertainty due to bidding situation

Since the first bid on Haldex was placed on July 14, our primary objective has been to continue running our business in accordance with previously set targets and I would venture to say that we have done a good job internally. However, customer reactions have impacted us negatively in the meantime. This fall suppliers will be chosen for several major contracts. Some of these contracts reach five years into the future with additional aftermarket sales after that. How Haldex will develop is therefore of major importance when choosing supplier. Haldex will be a high risk choice for as long as the ownership situation remains unclear. We are working hard to counteract the effect of the on-going bidding process on contract discussions. We have a good dialogue around solutions to reduce the degree of uncertainty in our efforts to secure a disc brake contract with a truck manufacturer, but there is an impending risk that we will lose the contract if the ownership situation ir not soon resolved. This in turn will impact our growth opportunities in the long term.

Moving on to a new position

One week ago, I made the tough decision to resign as the CEO of Haldex. These past years have been very fruitful since I began working on our strategy and the path toward profitable growth in 2012. The intensive bidding process the company is currently undergoing is itself an indication that what we have jointly created at Haldex is held in high esteem. I have a very strong management team supporting me that will continue to lead the company in the right direction in collaboration with me until my successor is found.  

Market outlook

Our forecast for the market is essentially the same as in previous quarters. The European market is looking stable in 2016 with a slight increase in order intake, while the North American market is forecast to continue on a very weak trend. The positive trend will continue in India, but we expect no significant improvement in Brazil in 2016. China has had a good first half of the year with indications that the second half will be slightly worse.

We are sticking with our forecast that 2016 will be a year where we will still be feeling the effects of the events in North America and struggle to generate growth. We aim to continue ensuring solid profitability, and the operating margin for the first nine months of the year can be considered realistic under current market conditions.”

Full interim report

The full interim report is available at http://corporate.haldex.com/en/investors/financialreports 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 Bo Annvik, President and CEO, and Åke Bengtsson, CFO. The presentation will also be webcasted live and you can participate with questions by telephone.

Date & Time: Tuesday October 25 at 11.00 CEST

The press conference is broadcasted at:
https://wonderland.videosync.fi/2016-10-25-haldex-q3-report

To join the telephone conference:

Sweden: +46 8 56 64 26 99

UK: +44 20 3008 9808

US: +1 85 5831 5947

The webcast will also be available afterwards and you can download the Interim report and the presentation from Haldex website: http://corporate.haldex.com/en/investors  

For further information visit http://corporate.haldex.com or contact:

Bo Annvik, President & CEO, +46 418 476000
Åke Bengtsson, CFO, +46 418 476000
Catharina Paulcén, SVP Corporate Communications, catharina.paulcen@haldex.com or +46 418-476157

Haldex AB (publ) is required to publish the above information under the EU Market Abuse Regulation and the Swedish Financial Instruments Trading Act. The information was submitted for publication by the Haldex media contact stated in the release on Tuesday, October 25, 2016 at 7:20 CEST.

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.

About Haldex

With more than 100 years of intensely focused innovation, Haldex holds unrivaled expertise in brake systems and air suspension systems for heavy trucks, trailers and buses. We live and breathe our business delivering robust, technically superior solutions born from deep insight into our customers’ reality. By concentrating on our core competencies and following our strengths and passions, we combine both the operating speed and flexibility required by the market. Collaborative innovation is not only the essence of our products – it is also our philosophy. Our 2,100 employees, spread on four continents, are constantly challenging the conventional and strive to ensure that the products we deliver create unique value for our customers and all end-users. We are listed on the Nasdaq Stockholm Stock Exchange and have net sales of approximately 4.8 billion SEK.

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