Letter from the CEO

The 2017 financial year was a challenging year. Still, SAF-HOLLAND significantly exceeded its original sales target and increased sales by EUR 96.9 million to a total of EUR 1.138,9 million. The Group also achieved its operating earnings targets, though at the lower end of the targeted range.

We also took some important steps during the reporting year towards achieving our medium-term targets as part of our Strategy 2020. We worked intently on designing solutions for smart trailers, increasing our contribution to autonomous driving and implementing a significant number of digitization projects. And we’re on the right road to complement our growth through acquisitions and joint ventures – also an important objective of our Strategy 2020.

In 2017, the world economy grew stronger than originally expected. Most of the major economies developed positively. The global commercial vehicle markets in the 2017 financial year largely returned to their long-term growth trend, even if some of the important regional markets, such as Brazil, made little progress or, in the case of the commercial vehicle production in Turkey, showed clear signs of weakness. The dynamic increase in demand for trucks and trailers in the second half of 2017 in the United States turned out not to be a solely positive development for us.

The Group’s individual segments saw very divergent development. While the EMEA / I and APAC / China regions both posted an outstanding development in sales as well as in earnings, the earnings performance in the Americas region came in noticeably below plan.

The unexpected dynamic recovery in the truck and trailer markets in North America in the second half of 2017, at a time when we were already in the middle of relocating our plants in the course of our US plant consolidation started in the spring, presented us with great production and logistical challenges.

The measures taken in this challenging environment to guarantee our customers timely and error-free delivery led to significant additional operating expenses. This placed an obvious burden on our 2017 financial year results and caused us to come in at the lower end of our original target margin corridor of 8 to 9 %.

It was no question for us that the priority was the needs and requirements of our customers, and we did our best to meet them. After all, making our customer needs a priority is the basis upon which we have built our long-term successful working relationship, not only with our customers in the original equipment business but also with the fleets and in the spare parts business.

We were still able to reach some key operating milestones last year in the US. By relocating the Holland production site in September and the plant in Muskegon at the end of December, the Group was able to complete the relocation measures planned within the scope of the U.S. plant consolidation on schedule at the end of 2017.

The focus in the current 2018 financial year will be to optimally reintegrate the logistics and production processes of our plant network, which has been centralized in five locations instead of seven. After a successful start-up phase, the planned cost savings and efficiency gains from the network’s restructuring are to be realized. We then expect to see a successive and sustainable improvement in the region’s profitability. This is the focus of our 2018 Management Action Plan (MAP) for the region.

The Chinese commercial vehicle market posted high growth rates again in 2017. Sales of trucks and trailers benefited significantly from stricter loading limits and increased safety regulations. This is leading to higher demand for lightweight solutions and sophisticated axle and air suspension systems with disc brake technology, which are our areas of specialty. We are therefore expecting high growth in the premium area. The large fleet operators are investing in the modernization of their vehicle fleets.

This trend opens up tremendous opportunities for SAF-HOLLAND – and we have already positioned ourselves strategically for what is ahead. By beginning the construction of a new production center on 46,000 square meters of production space in Yangzhou, we have taken a large step towards driving sales in the APAC / China region to well over EUR 100 million by 2020. This new plant is expected to commence operations in the first half of 2019.

We are also very pleased with our business performance in the core EMEA / I region. Even though there was only minimal growth in the region’s truck and trailer markets, we were still able to increase our sales by 7.6 %, gain further market share and position ourselves with new products. The startup of our new plant in Düzce, Turkey, was very successful despite a difficult environment. Meanwhile, our capacities there are well utilized, and we are currently running a two-shift operation. The rising demand from neighboring countries has contributed significantly to this success.

New product developments and future trends also took the spotlight in 2017. We are increasingly combining our mechanical components with sensors and electronics, and thereby embarking on a new chapter on our way to future, complementary business models such as preventive maintenance.

How truly active our company already is in these areas of the future and what type of opportunities may arise can be found in the magazine section of our new digital annual report where we have exciting audio-visual content. We hope you will enjoy it.

Taking a look at what lies ahead, in the 2018 financial year our plan is to continue to grow and expand our organic sales by 4 % to 5 % and reach a range of around EUR 1,180 million to EUR 1,195 million. Achieving this will bring us another step closer to achieving our Strategy 2020 goal of raising our organic sales to EUR 1,250 million by the year 2020.

External growth is and will remain a core component of our strategy. We have set ourselves the goal of growing our sales to EUR 1.5 billion by the year 2020, and this target includes acquisitions. We believe we are on the right track with our M&A activities. After withdrawing our offer for HALDEX in 2016, we have shown that we do not stray away from our financial discipline.

In the first quarter of the 2018 financial year, we accomplished a further milestone in our 2020 growth strategy by acquiring a majority stake in the Italian company ­V.ORLANDI S.p.A. This further strengthens our number two position in Europe for fifth-wheel couplings and expands our specialty business with coupling systems and components. Regionally Orlandi complements our position in hitches and trailer couplings in markets out of Europe such as China, the Middle East and Australia. Besides we have been working on other projects that could propel us forward from both a regional as well as a technological standpoint. The contribution expected from this latest acquisition will add to our stated organic sales and earnings outlook for the 2018 financial year.

Profitable growth is our priority. The adjusted EBIT margin is expected to reach a minimum of 8 % again in full-year 2018 and, from today’s standpoint, should be in the range of 8 to 8.5 %. In the Americas region, we expect to incur further additional operating expenses in the first half of 2018, but foresee a gradual improvement in earnings over the course of the year.

Our medium-term 2020 target has been set out clearly: total sales of EUR 1.5 billion and an adjusted EBIT margin of at least 8 %. The share of sales from emerging economies should trend higher in the direction of 30 % because it is in these markets that we expect the transportation industry to see its highest growth rates in the coming years.

I would like to conclude by saying that the overall solid result achieved in the 2017 financial year was due to a large extent to the tremendous expertise and high level of commitment of our employees worldwide. Their strong motivation greatly contributed to this success. With readiness and determination, they have also supported our colleagues in the Group’s other regions, some of whom were faced with a difficult year and particularly demanding tasks.

The SAF-HOLLAND Group has shown that everyone involved is moving in the same direction, and for this, I would like to thank all of our employees, also on behalf of my colleagues on the Management Board and Board of Directors. We would also like to show our special appreciation to SAF-HOLLAND’s development partners, customers and suppliers for their reliable and faithful cooperation. Besides, we are very pleased with the long-term commitment shown by our shareholders. Stay with us in 2018, and accompany us further on our way.

Sincerely,

Detlef Borghardt
Chief Executive Officer (CEO),
Member of the Board of Directors
Member of the Management Board