ZF records 36.4bn euros revenue in 2017, to expand R&D operations

Technology company ZF has reported 2017 sales revenue of 36.4 billion euros (Rs 229,320 crore) and EBIT at 2.3 billion euros (Rs 17,581 crore), helping the company achieve organic growth of six percent, despite the increase in its research and development expenditure.

Wolf-Henning Scheider, chief executive officer, ZF, said that the company will further increase its R&D spend and work even faster to produce technologies for the future of mobility. “The world of mobility is spinning at high speed. 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,” said Scheider.

In 2017, ZF spent 2.2 billion euros (Rs 16,816 crore) on R&D, an increase of almost 15 percent compared to 2016. And in 2018, significantly more than two billion euros is set to be channelled into development work around the world, with the aim of advancing electric drives and the hybridisation 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.

Additionally it also plans to continue investing in property, plant and equipment (2017: 1.4 billion euros or Rs 10,701 crore), including two new plants for the production of electric drive components, which are planned, among other things.

For the year 2017, ZF sales saw a nominal increase of 3.6 percent to 36.4 billion euros (Rs 278,421 crore) in Group sales (2016: 35.2 billion or Rs 269,068 crore), that adjusted for exchange rate effects and M&A activities, organic sales grew by six percent.

“This result shows our employees’ commitment and high level of motivation,” stated 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.

In both Europe and North America, the company sales rose by over three percent, and in the Asia-Pacific region it witnessed organic growth of eight percent reduced to around two percent on the back of the negative currency effect of the Chinese Renminbi. It further states that the economic crisis in South America has, to a large extent, been overcome, which saw sales increase significantly by around 26 percent, coming from a low level.

Productivity and Profits
In 2017, ZF saw an increase in both sales and profit, with its adjusted earnings before interest and taxes (EBIT) increasing from 2.2 billion euros (Rs 16,816 crore) to 2.3 billion euros (Rs 17,581 crore), with the adjusted EBIT margin equal to the previous year (6.4%). The company states both sales and earnings are therefore at the upper end.

The cash reserve for 2017 was 1.8 billion euros (Rs 13,759 crore) (2016: 2.0 billion euros or Rs 15,288 crore), while the equity ratio increased from 21 to 24.4 percent. “We are looking back at a profitable and successful year,” said Dr Konstantin Sauer, chief financial officer, ZF. 

Outlook for 2018
ZF said that the market development remains volatile around the world, and taking this into consideration, ZF CEO Scheider perceives organic growth of around five percent for 2018. It 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 euros (Rs 279,006 crore). The company is aiming to achieve an adjusted EBIT of around six percent and an adjusted cash reserve of over one billion euros (Rs 7,644 crore).

Faster innovation
The requirements of the dynamic development in the automotive industry is highly demanding, so ZF’s CEO Wolf-Henning Scheider wishes to further 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.”