ZF sales, earnings scale new heights

Germany-based technology company ZF Friedrichshafen AG recorded sales of EUR 18.4 billion in 2014, up nine per cent compared to 2013. Earnings before interest and taxes (EBIT) at EUR 1.1 billion increased, well above the industry average, to 36 per cent.

Presenting the annual financial statements in Stuttgart on Tuesday, ZF’s CEO Dr. Stefan Sommer, said that “2014 was characterized by heterogeneous market trends,” and the results confirmed last year’s forecast of sales growth in the high single-digit per cent range.

“It is all the more gratifying that we reached our goal. Our employees contributed to this success with their extraordinary commitment”, he said.

For ZF the main growth driver was the business in automatic passenger car transmissions and axle systems. “The 8-speed automatic transmission, whose second generation we launched last year, has been very popular among customers,” Sommer said. The market for commercial vehicles and off-road machinery turned out to be more difficult, he added.

Growth drivers: The regions of North America (EUR 3.7 billion) and Asia-Pacific (EUR 3.6 billion) recorded 21 per cent rise in sales. They were the top contributors to the company’s record sales growth.

In Europe ZF generated about 56 per cent of sales at EUR 10.3 billion, an increase of five per cent.

Owing to the floundering economic conditions, sales in South America fell 20 per cent.

Steep rise in earnings: The 36 per cent surge in EBIT to EUR 1.1 billion was higher than sales in terms of percentage points. According to ZF’s CFO, Dr. Konstantin Sauer, the driving factors included increase in productivity and sales and positive sales margins. The Group achieved an even greater percentage increase in its net profit after tax, climbing 45 per cent to EUR 672 million.

“Our focus on efficiency and the continuous enhancement of our portfolio is mirrored in the positive development of our key financial figures. This confirms that we are on the right path,” Sauer said.

New investments: Owing to the strong demand for ZF products, the company invested about EUR 1 billion in property, plant and equipment in 2014 which was far above the depreciation, Sommer said.

“Our customers require our presence on site, and the company itself is continuously expanding its production and research network,” he said. The investments included a large-scale expansion of the Engineering Center in Shanghai, and a new test center for transmissions in Friedrichshafen, the headquarters of Corporate Research and Development of the ZF Group.

R & D expansion

ZF spent EUR 891 million on research and development (R&D) in 2014, up seven per cent from the previous year. Once again the company hit the target of five per cent of sales for R & D. With more than 860 patent applications, the company was again ranked among the top 10 innovators in Germany.

3,200 new jobs

At the end of 2014, the ZF Group had a global workforce of 71,402, with 41,188 of them in Germany. The Group created almost 3 200 additional jobs worldwide – an increase of five percent. By selling the Rubber & Plastics business unit consisting of 3,500 employees and the South African subsidiary AIBC with 900 employees, 4,400 employees were dropped.

The sale of the 50-per cent stake in the former ZF Lenksysteme GmbH to Robert Bosch GmbH did not impact the ZF Group’s sales or workforce figures due to the IFRS accounting rules. This transaction was concluded on January 30, 2015.

TRW acquisition deal a major milestone:  “The agreement to acquire TRW Automotive was an important strategic course for ZF in 2014’’, Sommer said. “This will help us considerably expand our expertise as a systems supplier. The customers of ZF and TRW will have access to a broad product portfolio from a single source that will offer future mobility solutions in both driveline and chassis technology as well as safety and assistance systems’’, he added.

After the approval by the antitrust authorities, the acquisition is expected to be concluded as scheduled in the first half of 2015.

The other important steps along the way included the founding of two new joint ventures in China: One with automotive manufacturer BAIC in the passenger car chassis sector, and the other one with tractor manufacturer YTO in the agricultural machinery sector.

Comfortable equity ratio

The Group’s equity ratio remained relatively constant at 34 per cent by the end of 2014. The net financial position stayed positive at EUR 1.4 billion, 37 per cent higher than that in the previous year. Regarding the acquisition of TRW Automotive, Sauer said that, “we are net debt-free and continue to enjoy a very comfortable equity ratio. This is an outstanding starting position for the upcoming acquisition.”
When the TRW acquisition agreement was signed, ZF had obtained loan commitments for over EUR 12.5 billion from banks in the form of bridge financing and longer-term loans. As a result of the successful bonded loan placement in the amount of EUR 2.2 billion in January 2015 and the sales proceeds from ZF Lenksysteme, the bridge financing has been reduced considerably, he said.

Integration planning: “We are approaching integration of the two companies in a very structured and pragmatic manner. Integration will not occur for integration’s sake. On the contrary, we are concentrating on the areas that offer added value for our customers and the company,” Sommer said.

Altogether 13 work streams, each headed by one representative of ZF and one of TRW, are working intensively on integration planning, in the areas of Sales, Research and Development, and Purchasing. All integration activities are globally coordinated by the Integration Management Office.

A steering committee made up of Dr. Sommer and TRW CEO John Plant, among others, meets every 14 days.

In four phases

Integration is to be carried out in four phases in three to five years. Phase 1 involves preparing for “Day 1” after the acquisition has been concluded. During Phase 2, TRW is to be integrated as a fifth division. Project-based cooperation is planned for Phase 3. Structural integration is not supposed to take place until Phase 4. Thereby, top priority is given to sales, aftersales, and purchasing, Sommer said.

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