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ZF Enters A New Dimension With TRW Acquisition
Group sales rise substantially to €29.2 Billion / EBIT stands at €1.6 Billion / Debt from the acquisition already reduced significantly
“2015 was an outstanding year for our company: We celebrated our centennial and successfully completed the largest and most important acquisition in the company’s history,” says Dr. Stefan Sommer, ZF Chief Executive Officer. “I am proud to say that, in the past financial year, we laid the foundations for a sustainably successful future at ZF. We are networking mechanical components intelligently with control units and sensors. This way, we will be able to help shape the megatrends of safety, efficiency and autonomous driving even more effectively.”
The Chairman of the ZF Supervisory Board, Prof. Dr. Giorgio Behr, expressed his great satisfaction with the performance of the Executive Board and the Chief Executive Officer. “We are very proud to have such a visionary and innovative Chief Executive Officer in Stefan Sommer,” affirmed Behr. “The acquisition of TRW is a particular case in point where he moved ZF and his colleagues on the Executive Board forward sustainably and positioned the Group as an innovation and cost leader in the automotive supplier sector. We have the utmost trust in his capability to continue consistently on this roadmap and we want to continue this success together.”
Balanced regional sales distribution
As a result of the acquisition of TRW, ZF has substantially increased Group sales, with ZF TRW as the fifth division contributing €8.9 billion to growth since the acquisition on May 15, 2015. In addition, the Group’s regional distribution of sales is now also more balanced: The sales share in North America increased from 20 to 28 percent, while the share in Europe fell from 56 to 47 percent. The Asia-Pacific Region accounted for 22 percent of ZF sales (2014: 20 percent).
In line with the past few years, business performance in the key regions varied in 2015: Sharp growth in the North America and Asia-Pacific markets and moderate growth in Europe contrasted with a continued downturn in South America.
Substantial increase in earnings
The Group’s earnings figures were affected by extraordinary items. EBIT stood at just under €1.6 billion (2014: €1.1 billion), with an EBIT margin of 5.5 percent in fiscal 2015. Adjusted for extraordinary items, the EBIT margin for 2015 was 5.4 percent and thus above the prior-year figure of 4.6 percent. EBITDA climbed to €3.4 billion (2014: €2.0 billion), while the EBITDA margin stood at 11.5 percent (2014: 11.1 percent). The net profit after tax was €1.0 billion, which corresponds to an increase of €347 million.
Acquisition debt reduced substantially thanks to strong cash flow
Operating free cash flow adjusted for extraordinary items was just under €1.4 billion at year-end, €800 million above the previous year. This is attributable, among other things, to ZF TRW being incorporated for the first time since the acquisition on May 15, 2015, with 7.5 months in ZF’s Consolidated Financial Statements.
ZF managed to reduce debt levels substantially in 2015. Key factors included the strong operating cash flow and one-time effects. “From the outset we have pursued conservative financing with a balanced maturity profile,” says ZF Chief Financial Officer Dr. Konstantin Sauer. “The fact that we have already been able to reduce our net financial liabilities so quickly by €1.4 billion demonstrates that we are on the right track. We also intend to work systematically on further reducing our debt in 2016.”
High levels of investment maintained
In addition to the substantial reduction in debt, in 2015 ZF once again focused squarely on investing in the future. The company invested around €1.3 billion (2014: €1.0 billion) in property, plant and equipment, particularly to expand its production and development capacity. This corresponds to 4.4 percent of sales. €1.4 billion was invested in research and development, enabling ZF to reach its self-imposed target of around 5 percent of sales.
Integration of ZF TRW driven forward successfully
Following the acquisition, TRW was integrated into the ZF Group as the new “Active & Passive Safety Technology” Division. ZF already presented initial successes from the comprehensive, multi-year integration process at the IAA in Frankfurt in September 2015.
“Innovations such as the IAA show car and a prototype of a volume production model, which was recently unveiled in Sweden, demonstrate the value added which the combined companies offer in terms of products and technologies. With our new structure we are perfectly placed to become a truly global integrated systems supplier,” says Sommer. “We will also continue to systematically drive forward the integration of ZF TRW in 2016. We will be focusing on developing innovative products which enable us to fully leverage our unrivaled expertise in the area of smart mechanical systems.”
ZF assumes that the markets for passenger cars as well as for light and heavy commercial vehicles will show solid overall development. At the same time, ZF expects to see substantial sales growth in the Industrial Technology Division. Drivers in this sector include the integration of the industrial drive and wind turbine gearbox business acquired at the end of 2015, and the sound market position and development of the Wind Power Technology Business Unit.
ZF expects Group sales for 2016 in the region of between €35 billion and €36 billion. The expected sharp increase in sales compared with 2015 is essentially based on the first-time full-year inclusion of ZF TRW. Over the medium term, ZF expects to see overall growth of 7 percent for the ZF Group, which is above-average for the market as a whole. The adjusted EBIT margin for 2016 is currently expected to be between 5 and 6 percent. ZF anticipates an adjusted EBITDA margin of over 10 percent.
“In 2015, we performed successfully and once again did better than in the previous year,” says Sommer. “To ensure that we are also well placed for the future, we need to do our homework in 2016 and improve our results. This applies in particular to the German locations, which we need to make even more competitive.”
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