Friedrichshafen, Germany. ZF Friedrichshafen AG will increase their research and development spending again and work even faster to produce technologies for the future of mobility. CEO Wolf-Henning Scheider, who has been in office since February 1, made this statement at the company’s annual press conference in Friedrichshafen today. ZF ended the fiscal year 2017 with record sales of €36.4 billion, which, when adjusted for exchange rate effects and M&A activities, elicited organic growth of 6 percent. ZF also further reduced the debt incurred from the acquisition of TRW Automotive and posted a higher adjusted EBIT of €2.3 billion, despite increased research and development costs.
“The world of mobility is spinning at high speed,” said Scheider. “We plan to provide our customers with pioneering solutions in all fields under our motto ‘See – Think – Act’, which is why we will further increase our research and development spending.”
In 2017, ZF spent €2.2 billion on research and development, an increase of almost 15 percent compared to 2016. This year, significantly more than two billion is set to be channeled into development work around the world, with the aim of advancing electric drives and the hybridization of transmission technology as well as vehicle safety systems and automated driving. This means that the share of the budget allocated to R&D will be raised from 6.1 percent to around 6.5 percent this year. Equally, ZF wishes to continue investing in property, plant and equipment (2017: €1.4 billion). Two new plants for the production of electric drive components are planned, among other things.
Sales increase by six percent
In 2017, ZF experienced a nominal increase of 3.6 percent to €36.4 billion in Group sales (2016: €35.2 billion). Adjusted for exchange rate effects and M&A activities, organic sales growth is six percent. “This result shows our employees’ commitment and high level of motivation,” said Scheider. The Commercial Vehicle Technology and Car Powertrain Technology Divisions had above-average sales increases of 7.2 percent and 9.3 percent, respectively. “Our extremely efficient automatic passenger car transmissions contribute to reducing CO2 emissions. They are therefore a key component in attaining the European limit targets and global climate targets, and are in high demand. Combined with the highly integrated electric motor, this technology still features great growth potential,” said Scheider.
Regional growth was mixed. In both Europe and North America, sales rose by over three percent. Organic growth of eight percent in the Asia-Pacific region was reduced to around two percent by the negative currency effect of the Chinese Renminbi. It appears that the economic crisis in South America has, to a large extent, been overcome. Sales there increased significantly by around 26 percent, coming from a low level.
The headcount for the ZF Group was 146,148 on the effective date, December 31, 2017 (2016: 136,820). Additional posts were created mainly in China, Mexico, Portugal, the USA and Germany, most of them within the Active & Passive Safety Technology, E-Mobility, Car Chassis Technology and Car Powertrain Technology Divisions. Of these, around 1,700 worldwide were attributed to research and development alone.
Stable profits, greater productivity
Last year, ZF not only increased its sales but also its profit situation. Adjusted earnings before interest and taxes (EBIT) increased from €2.2 billion to €2.3 billion; the adjusted EBIT margin was equal to the previous year’s, at 6.4 percent. Both sales and earnings are therefore at the upper end of the amounts predicted early in 2017. The adjusted free cash flow amounted to €1.8 billion at the end of last year (2016: €2.0 billion). The equity ratio has risen again, from 21 to 24.4 percent. “We are looking back at a profitable and successful year,” said Dr. Konstantin Sauer, chief financial officer at ZF. “We have improved our processes and cost structures within a challenging environment, and have become even more productive. We have therefore been able to finance higher budgets for research and development, at the same time improving the earnings quality.”
In around two and a half years after acquiring TRW Automotive in May 2015, ZF succeeded in reducing gross debt to €6.4 billion, almost half of the original amount, by the end of 2017. “Based on the strong free cash flow, our aim is to further reduce financial liabilities and continue to drive forward the debt relief of the ZF Group in 2018,” said Sauer.
Prospects for 2018
Market development is volatile around the world. Taking this into consideration, ZF CEO Scheider predicts organic growth of around five percent for 2018. ZF expects to conclude the sale of the Body Control Systems Business Unit to Luxshare soon, which will result in a proportional drop in sales. Consequently, ZF expects Group sales of around €36.5 billion. As in the previous year, ZF is aiming to achieve an adjusted EBIT of around six percent and an adjusted free cash flow of over one billion euros.
More speed for innovation
The requirements of the dynamic development in the automotive industry are highly demanding, so ZF’s CEO Wolf-Henning Scheider wishes to accelerate project-related cooperation within the Group. “We are reinforcing the implementation of cross-divisional teams with a high level of autonomy in decision-making and cooperation,” said Scheider. “They are better able to adapt to the requirements in the new fields of technology, which are changing so quickly. We work even more closely with our customers for these projects and at an earlier stage so that attractive products can be brought into volume production much more quickly. However, this also means that a project can be abandoned swiftly if the expectations cannot be met. With this approach, a start-up culture can be present in a big group.”
ZF teams would constantly have to be recreated, strictly according to the current project requirements so that they can answer the questions of the future, in order to quickly develop the best possible solutions for the customers. Several automated driving projects serve as examples for this. “In conjunction with our tried-and-trusted development of volume production projects in the traditional fields, we now also work with a dual operating system,” explained Scheider.