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Grammer AG: Further increase in revenue but exceptional effects and weaker passenger vehicle sales exerted pressure on Group earnings in the third quarter
- 1.5 percent increase in Group revenue to EUR 1.36 billion
- Operating EBIT very close to previous year’s level
- Strong growth in Commercial Vehicles Division compensating marketinduced decline in the Automotive Division
- Full-year guidance for 2018 adjusted
For Grammer AG, the third quarter of the current year was dominated by the completion of the company’s takeover by Jiye Auto Parts GmbH as well as the effects of weaker passenger vehicle markets in Europe. Following the acceptance of the takeover offer which Jiye Auto Parts GmbH – an entity associated with the company’s strategic partner Ningbo Jifeng – submitted to the shareholders of GRAMMER AG, the Chinese automotive components supplier is now the largest anchor shareholder with 84.23 percent. In the Automotive Division, the absence of the seasonal recovery expected after the end of the summer months had an adverse effect on Grammer’s revenue and operating earnings.
Operating profitability almost at the previous year’s high level despite difficult market conditions in the Automotive Division
In the first nine months of the current year, the Grammer Group posted a 1.5 percent increase in revenue to EUR 1.4 billion (2017: 1.3). This growth was primarily due to the sustained strong performance of the Commercial Vehicles Division, which was able to make up for the market-induced decline in revenue in the Automotive Division.
At EUR 56.6 million in the first nine months of 2018, operating EBIT adjusted for currency translation and non-recurring effects came very close to the previous year’s high level of EUR 58.6 million. The operating EBIT margin came to 4.2 percent and was thus virtually unchanged (2017: 4.4).
However, Group earnings before interest and taxes (EBIT) came to around EUR 27.9 million in the period from January to September 2018, thus falling short of the previous year’s figure of EUR 45.8 million, accompanied by a correspondingly narrower EBIT margin of 2.1 percent (2017: 3.4). The third quarter of 2018 was heavily influenced by changed underlying conditions in the automotive industry and, arising from this, generally weaker passenger vehicle sales in Europe in particular. In addition, exceptional effects totaling EUR 27 million (2017: 6.9) weighed on
Grammer’s earnings in the third quarter. These included mainly the typical nonrecurring transaction costs in connection with the acquisition of Grammer AG by an entity affiliated with Ningbo Jifeng as well as restructuring and acquisition expenses. Consequently, net profit came to EUR 14.9 million, falling substantially short of the previous year (2017: 25.7).
Strong revenue growth in the Asian market
Regionally, Grammer sustained a small decline of EUR 1.2 million in revenue, which thus dropped to EUR 918.2 million in its domestic EMEA market chiefly as a result of lower revenue in the Automotive Division compared with the same period in the previous year. However, this decline was almost completely offset by growth in the Commercial Vehicles Division. In the Americas region, Grammer was largely able to recoup the decline in revenue which it had recorded in the first half of the year and, at EUR 215.0 million, is now only slightly down on the previous year’s figure of EUR 216.6 million. By contrast, the company registered a significant increase of 11.4 percent in revenue to EUR 226.0 million in APAC (2017: 202.9). High demand in key sub-markets in Germany, the United States and China primarily continued to spur the Commercial Vehicles Division.
Sustained strong revenue growth in the Commercial Vehicles Division
Driven by rising sales volumes in the agricultural machinery, construction machinery and truck markets, Grammer posted a gratifying increase of 14.6 percent in revenue over the same period in the previous year to EUR 456.0 million in the Commercial Vehicles Division (2017: 397.8). Driven by market growth in all regions, the Division’s operating EBIT rose from EUR 34.3 million to EUR 43.5 million in the period under review. The operating EBIT margin also widened to 9.5 percent thanks to the revenue growth (2017: 8.6).
At EUR 942.7 million in the first nine months of 2018, revenue in the Automotive Division fell slightly short of the previous year’s figure of EUR 973.9 million. This performance was chiefly due to the large number of new product launches and, related to this, the lower revenue generated during the ramp-up phase together with a model-induced decline in sales volumes in the Americas. Also increasingly weaker passenger vehicle sales in EMEA were recorded towards the end of the third quarter. Operating EBIT in the Automotive Division came to EUR 24.6 million in the first nine months, thus falling short of the previous year (2017: 33.1). The lower revenue compared with the same period in the previous year and the resultant decline in capacity utilization at the production plants concerned exerted pressure on EBIT in this Division. The Division’s operating EBIT reached 2.6 percent (2017: 3.4).
Takeover of Grammer AG by strategic partner Ningbo Jifeng
Following the completion of the takeover, Jiye Auto Parts GmbH, an entity affiliated with Ningbo Jifeng, holds a total of 84.23 percent of the company’s share capital and is thus the majority shareholder of the Amberg-based automotive components supplier. The high rate of acceptance of the takeover bid caused the shareholder structure to shift to a greater extent than expected.
Full-year guidance adjusted
Grammer’s Executive Board still expects macroeconomic conditions to remain very challenging in 2018 as a whole. Specifically, the Automotive Division will continue to feel the effects of the increased and still ongoing slump in passenger vehicle sales in Europe in particular in the fourth quarter. Including the effects from the first-time consolidation of the US TMD Group from October 1, 2018, full-year Group revenue should reach around EUR 1.85 billion in 2018. Given the significant exceptional expenses arising in 2018, the Executive Board now expects EBIT of about EUR 50 million and operating EBIT slightly below the previous year. Looking ahead to 2019, Grammer projects renewed growth in revenue and earnings in the absence of any exceptional expenses assuming that macroeconomic conditions remain stable.
The Grammer Group’s full interim management statements on the first nine months of 2018 is available on the corporate website at the following link: https://www.grammer.com/en/investor-relations/financial-publications.html
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