Grammer confirms preliminary figures for 2019 and expects a significant slowdown in 2020

– Positive revenue development in both segments based on a strong first half of 2019

– Group revenue of 2.04 billion euros and operating EBIT totaling 77 million euros

– Production stops at customers in the automotive and commercial vehicle segments requiring capacity adjustments at Grammer plants in the first quarter 2020

– Due to the effects of the global COVID-19 pandemic, the forecast for the financial year 2020 has been suspended

The automotive supplier Grammer published its annual report for 2019 today and confirmed the preliminary figures for the year under review. According to the report, revenue grew by 9.5 percent or 177.2 million euros to 2.038 billion euros (2018: 1.861 billion euros). Growth was driven by both segments, whereby the first-time full consolidation of the American automotive supplier TMD, part of the group since October 2018, showed its effects in the Automotive segment.

The operating earnings before interest and taxes (operating EBIT), more significant from a business point of view, were 77.0 million euros, which represents a plus of 1.6 percent compared to the previous year’s value of 75.8 million euros. The margin of the operating EBIT totaled 3.8 percent (2018: 4.1 percent). Earnings before interest and taxes (EBIT) amounted to 74.5 million euros, which represents an increase of 25.8 million euros compared to the previous year (2018: 48.7 million euros). Earnings after tax for the year under review amounted to 43.5 million euros, hence a rise of 20.3 million euros compared to the previous year’s figure of 23.2 million euros. Undiluted earnings are calculated at 3.56 euros per share (2018: 1.90 euros).

“Despite a progressively weak sector development, the Grammer Group was able to achieve higher revenues in the past fiscal year under review. However, our growth slowed down in the second half of 2019 and the market situation continued to deteriorate at the beginning of this year,” explains Thorsten Seehars, CEO of Grammer AG, on the subject of current developments. “The major challenges for our industry and the currently not foreseeable consequences of the global COVID-19 pandemic have already left a very clear mark on our business in the first quarter of 2020.”

Automotive segment with growth after TMD Acquisition

Revenue in the Automotive segment increased in the fiscal year 2019 by 167.2 million euros or 12.7 percent to 1.480 billion euros (2018: 1.313 billion euros). The increase was in particular a result of the acquisition of the TMD Group, which has been consolidated from October 2018 on for the first time. Accordingly, revenue in the Americas region rose by 247.0 million euros or 85.9 percent to 534.6 million euros.

The EBIT in the Automotive segment amounted to 51.0 million euros in the 2019 fiscal year and was thus 13.3 million euros or 35.3 percent above the previous year’s figure of 37.7 million euros. Adjusted for foreign currency and one-off effects, operating EBIT amounted to 48.9 million euros, which is 12.1 million euros or 32.9 percent higher than the previous year’s figure of 36.8 million euros. Despite the tense market situation in the automotive sector, the return on operating EBIT thus rose to 3.3 percent (2018: 2.8 percent).

Stable revenue in Commercial Vehicles in 2019

Revenue in the Commercial Vehicles segment increased by 7.6 million euros or 1.3 percent to 607.4 million euros in the reporting period (2018: 599.8 million euros). The increase was in particular due to market growth in driver and passenger seats for trucks and driver seats for off-road commercial vehicles (tractors, construction machinery and forklifts). Furthermore, several important projects in the rail and bus sector, especially here in Europe, have been realized.

The segment EBIT fell by 11.4 million euros or 20.5 percent from 55.5 million euros to 44.1 million euros in the 2019 fiscal year. Operating EBIT fell by 10.8 million euros to 42.7 million euros. The return on operating EBIT fell to 7.0 percent (2018: 8.9 percent). The tense situation in the international truck and off-road vehicle markets was particularly noticeable in the second half of 2019. In addition to the demand drop, product mix and special expenses for relocations in China, as well as new product ramp-ups in the US, have had an impact on the return on EBIT.

Different development in the regions

In the EMEA region (Europe, Middle East and Africa), sales of 1.115 billion euros were generated: this represents a decrease of 76.1 million euros (-6.4 percent) compared to the previous year due to the weak market environment. Revenue in the Automotive segment fell significantly, whereas the Commercial Vehicles segment remained almost at the level of the previous year.

In the region Americas (North, Central and South America) sales amounted to 609.5 million euros as a consequence of the first time consolidation of the TMD acquisition for a whole year (2018: 366.4 million euros) and was considerably higher than the previous year’s figure by 243.1 million euros (66.3 percent). The Americas region was thus the second-largest region within the Grammer Group in terms of revenue. While revenue in the Automotive segment increased significantly mainly due to the TMD acquisition, Commercial Vehicles recorded a slight decline in revenue in the Americas region.

In the APAC (Asia Pacific) region, the Grammer Group achieved an increase in revenue of 10.2 million euros (3.4 percent) to 313.7 million euros (2018: 303.5 million euros). The segments also developed differently in this region. While the Automotive segment was confronted with the general market downturn of the Chinese automotive industry, however only recorded a smaller decline in revenue, the Commercial Vehicles segment reported an increase in revenue in this region due to product-rampups especially with large Chinese OEM’s.

Strengthening of equity

As of December 31, 2019, total assets of the Grammer Group amounted to 1.474 billion euros, up 33.0 million or 2.3 percent over the value as of December 31, 2018 (2018: 1.441 billion euros). The increase is mainly due to the application of the new accounting regulations of IFRS 16 “Leases”. Due to the positive group result, equity increased by 27.4 million euros to 342.2 million euros as of December 31, 2019 (2018: 314.8 million euros). The equity ratio thus rose to 23.2 percent (2018: 21.8 percent).

COVID-19 pandemic burdens global economy and automotive industry

The health of its employees and business partners is very important for Grammer. For this reason, the Company initiated appropriate safety measures at all locations since the end of January and continuously reviews them for their effectiveness.

As a result of government orders, Grammer had to temporarily close several locations in China for some weeks during the first quarter. However, those plants have been able to resume production at the beginning of March. In the meantime, nearly all manufacturers have decided to temporarily close their production sites in Europe and the US. As a consequence thereof, the Executive Board of Grammer AG has decided to temporarily restrict or completely halt production at its locations as of March 23. At those locations that e.g. continue to supply customers in China, production will be maintained in line with expected demand.

At the end of March, the company, together with the employee representatives, resolved a comprehensive package of measures to adjust capacities, particularly at its automotive locations in Germany and the other European countries, to the declining demand. The package of measures envisages a reduction in production in Germany in line with customer call-offs and to increase the company’s financial flexibility with the agreed short time working scheme. Details of the arrangements for the duration of the plant shutdowns are locally agreed due to site-specific differences. Comparable measures have been prepared and are also being implemented at production sites outside of Germany.

The Executive Board of Grammer AG has informed the Supervisory Board during the last meeting about its decision, to waive all its bonus payments for the years 2019 and 2020 in order to make a financial contribution in the current situation.

Intensification of the cooperation with Ningbo Jifeng

Since the beginning of this year, Grammer and Ningbo Jifeng have been working on a wide set of cooperation projects to achieve greater synergies in the areas of purchasing and manufacturing as well as an extension of the current product portfolio and an improved market access in certain regions for each of the partners. At the end of March, a first contract to set-up a global purchasing cooperation between both firms has been signed and will be implemented now. The two companies expect from this agreement savings in a two-digit million euros range during the coming years.

No guidance possible for the financial year 2020

Due to the worldwide spread of the COVID-19 pandemic and the resulting drastic measures and burdens, the Executive Board of Grammer AG has suspended the forecast for 2020 made at the beginning of March for the Annual Report 2019. The estimates and expectations contained therein were based on market assumptions and internal assessments from the beginning of 2020. From today’s perspective, neither the further development of the fiscal year 2020 nor the economic effects for the company can be reliably estimated. A new forecast will be issued as soon as this becomes possible.

The full annual report for the 2019 fiscal year can be found on the company’s website at www.grammer.com in the Investor Relations section.