Saft Groupe SA Reports Full Year 2006 Earnings
PARIS, March 15 -- Saft, [Euronext Paris: FR0010208165, SAFT] leader in the design, development and manufacture of high-end batteries for industry and defence, announces its certified results for the full year ended 31 December 2006.
Results highlights
- Full year 2006 sales of EUR 560.2m:
- Above original guidance of EUR 540m - EUR 550m and revised guidance of EUR 550m + 1%
- Good growth in core businesses resulted in net sales fall of only EUR 7.1m (-1.3%) compared with full year 2005 (at constant perimeter and constant exchange rates), despite c. EUR 35m fall in sales to the US Army.
- Achieved profitability guidance, despite headwind from nickel costs (which more than doubled in 2006) and a very poor performance from RBS. After adjusting for non-recurring items in both 2005 and 2006:
- EBITDA was EUR 99.3m in 2006, compared with a guidance range of EUR 97m to EUR 101m, and EUR 110m in 2005.
- EBIT was EUR 73.5m in 2006, compared with a guidance range of EUR 71m to EUR 75m, and EUR 85.7m in 2005.
- Net income increased 8.6% to EUR 37.9m in 2006, compared with EUR 34.9m in 2005, due to a significant fall in finance costs, and compared with a guidance range of EUR 37m to EUR 40m.
- Earnings Per Share increased 8.5% to EUR 2.05 in 2006, compared with EUR 1.89 in 2005.
- Net debt at 31 December 2006 reduced to EUR 300.6m, from EUR 334.8m at 31 December 2005.
- A 4.6% increase in the dividend to EUR 0.68 per share will be proposed to the Annual General Meeting.
John Searle, Chairman of the Management Board, commented: "I am delighted to announce that we have delivered on each of our 2006 financial commitments. We have managed to beat our sales guidance and achieve our profit guidance, in spite of the headwind from nickel costs (where prices have more than doubled during the year), demonstrating the resilience of the Group. Sales only fell EUR 7m, despite a c. EUR 35m fall in sales to the US Army, thanks to net growth of 5% in the remainder of our business. We have increased net income, due to lower finance costs, and our strong cash flow also enabled us to repay EUR 20m of debt early during 2006. We have continued to develop our future growth drivers, and I am particularly encouraged by the progress made by JC-S, our hybrid vehicle joint venture, during its first year, which leaves this business well-positioned for future success."
Full year consolidated results
EUR m Year ended 31 December Year ended 31 December
2006 2005 % growth 2006 2005 % growth
Excluding non-recurring As reported
Sales 560.2 566.2 (1.1%) 560.2 566.2 (1.1%)
Gross profit 164.5 177.4 (7.3%) 164.5 177.4 (7.3%)
Gross profit % 29.4% 31,3% 29.4% 31.3%
EBITDA(*) 99.3 110.0 (9.7%) 99.3 104.3 (4.8%)
EBITDA % 17.7% 19.4% 17.7% 18.4%
EBIT(*) 73.5 85.7 (14.2%) 73.5 80.0 (8.1%)
EBIT % 13.1% 15.1% 13.1% 14.1%
Profit before
income tax(**) 53.9 50.4 6.9% 68.8 32.6 111.0%
Net income(***) 37.9 34.9 8.6% 46.9 20.4 129.9%
EPS (EUR per share) 2.05 1.89 8.5% 2.54 1.10 130.2%
More details on Saft's 2006 results, including the full financial statements, are available in the "Annual Financial Report" which is available on Saft's website www.saftbatteries.com.
Notes:
Later in this press release, more details are provided on the following changes of perimeter:
- Equity accounting for ASB joint venture, which was previously proportionately consolidated. The results for 2005 have been restated on the same basis.
- Acquisition of 51% of AMCO-Saft India Ltd in January 2006. This has been fully consolidated, with elimination of the 49% minority interest.
- Equity accounting for 49% interest in Johnson Controls - Saft Advanced Power Solutions LLC ("JC-S"), which was created in January 2006.
EBIT is defined as operating profit, before restructuring costs and other income and expenses.
EBITDA is defined as operating profit, before depreciation, amortisation, restructuring costs and other income and expenses.
(*) Includes non-recurring transaction costs of EUR 5.7m in 2005.
(**) Includes non-recurring transaction costs of EUR 5.7m in 2005, non-recurring write-off of refinancing costs of EUR 12.1m in 2005 and non-recurring gain on creation of JC-S in 2006 of EUR 14.9m.
(***) Includes non-recurring transaction costs of EUR 5.7m in 2005, non-recurring write-off of refinancing costs of EUR 12.1m in 2005 (less tax of EUR 3.3m) and non-recurring gain on creation of JC-S in 2006 of EUR 14.9m (less tax of EUR 5.9m).
Results by product line
Product Year ended 31 December 2006 Year ended 31 December 2005
line Sales Sales EBITDA EBITDA Sales EBITDA EBITDA
EURm growth % EURm margin % EURm EURm margin %
SBG 240.5 (5.3%) 55.9 23.2% 254.9 63.3 24.8%
IBG 238.7 3.9% 53.0 22.2% 227.8 55.6 24.4%
RBS 81.0 (2.9%) (5.7) (7.0%) 83.5 0.1 0.1%
Other 0.0 (3.9) 0.0 (9.0)
Total 560.2 (5.3%) 99.3 17.7% 566.2 110.0 19.4%
All at actual exchange rates, except sales growth % which is at constant rates.
The "Other" cost centre includes central functions such as IT, research and central management, finance and administration. The reduced loss in this cost centre is largely due to an increase in the recharge to the 3 product lines equating to 1% of sales.
Speciality Battery Group
- SBG sales declined by 5.3% at constant exchange rates and constant perimeter. This was entirely due to a c. EUR 35m reduction in sales to the US Army (as announced previously), largely offset by net growth of approximately 10% across other segments, all of which performed well.
- The fall in EBITDA margin was due to an increased central recharge (as explained above) and the fall in sales.
Industrial Battery Group
- IBG had a good year, with sales increasing by 3.9% at constant exchange rates and constant perimeter. Sales in the Telecom and Industrial Standby segments were strong, offsetting a small fall in the Railways segment, which had exceptional growth in 2005.
- The fall in EBITDA margin was due to the increased central recharge (as explained above) and increasing nickel costs.
Rechargeable Battery Systems
- RBS sales fell by 2.9% at constant exchange rates. Both the Emergency Lighting and Professional Electronics segments showed modest year-on-year growth, but this was insufficient to compensate for the expected fall in sales in the non-strategic telecom and consumer segment.
- The fall in EBITDA margin was due to:
- the increased central recharge (as explained above)
- increasing nickel costs
- c. EUR 1m of one-off labour inefficiency during the successful implementation of the restructuring plan during H1, and
- c. EUR 3m of one-off costs incurred following a product failure and subsequent recall, including a full provision for the recall.
Raw material costs
As previously disclosed, nickel accounts for the largest proportion of Saft's purchases of traded metals. Nickel costs have increased significantly since April 2006. The average LME cash prices per metric tonne in 2006 were approximately EUR 15k in Q1, EUR 20k in Q2, EUR 29k in Q3 and EUR 33k in Q4. The average LME price in 2006 was approximately EUR24k compared with EUR 15k in 2005.
In 2006, since April, nickel prices have also been very volatile with a minimum LME cash price of EUR 16k and a maximum of over EUR 35k.
In 2006, Saft purchased approximately 1,400 tonnes of nickel at prices directly linked to London Metal Exchange ("LME") prices. In addition, Saft purchased c. 600 tonnes of nickel derivative products (net of sales of recycled product), largely on long-term fixed price contracts. Given the significant increase in nickel costs, Saft's suppliers of these derivative products have now changed their pricing policy to be linked directly to LME prices.
Saft has reacted promptly to the higher costs and volatility. IBG implemented general price increases on 1 July 2006 and 1 January 2007, and RBS introduced a surcharge from 1 July 2006 relating to the LME cash price of nickel. These price increases and surcharges apply to new orders (except where not contractually possible). However, due to each division's backlog of orders and quotations, there is an inevitable lag before the price increase or surcharge takes effect, of c. 6 months in IBG and c. 3 months in RBS. IBG accounted for approximately 60% of the nickel used by Saft in 2006, with RBS using the remaining 40%. SBG does not use nickel to any material extent.
Nickel costs have continued to rise in 2007, such that IBG may implement further price increases, although margins will continue to be adversely affected due to this time lag. However, Saft expects that this margin decline will cease once nickel costs stabilise.
Saft's hedging of purchases has now expired. For RBS, no hedging is being undertaken, as the surcharge is being applied instead. For IBG, during this period of high and volatile nickel costs, no hedging is being undertaken at current prices. However, Saft continues to review future hedging strategies and opportunities.
Johnson Controls - Saft ("JC-S")
In January 2006, Johnson Controls and Saft created Johnson Controls - Saft Advanced Power Solutions LLC ("JC-S"), a joint venture with the objective of becoming the leading Western supplier of batteries for Hybrid and Electric vehicles ("HEV's"). Saft's proven expertise in high-performance, advanced battery technologies complements the strengths of Johnson Controls in high-volume production capabilities and outstanding knowledge of the global car industry. Saft contributed know-how, technology licences and contracts for a 49% stake. Johnson Controls contributed know-how, technology licences, contracts and EUR40m of cash and assets for a 51% stake.
This joint venture has had the following impact on Saft's 2006 results:
- The creation of the joint venture resulted in Saft recording a non-recurring profit of EUR 14.9m. This represents Saft's portion of the gain on assets contributed to the joint venture that is attributable to the interests of the other partner. This is recorded in "Other operating income and expenses", below EBITDA.
- Saft also provided a EUR 5.9m deferred tax liability against this gain, resulting in a net EUR 9.0m increase in net income.
- Within "Share of profit / (loss) of associates", Saft has included EUR 4.4m in respect of its 49% share of the losses of JC-S.
- Saft has also recorded a deferred tax asset of EUR1.7m against these losses.
The joint venture has already announced the following successes since its creation:
- Award of a contract from the USABC consortium to accelerate development of li-ion batteries for HEV's;
- Signature of a letter of intent with a major car manufacturer for 2 li-ion HEV programmes. As a result, JC-S is now building a manufacturing plant for li-ion batteries at Saft's RBS Nersac site;
- Award of a contract by General Motors to develop li-ion batteries for a future plug-in hybrid version of the Saturn Vue SUV.
In the light of these successes and other opportunities, the partners have agreed to increase the joint venture's budgeted capital expenditure and operating costs.
Changes of perimeter in 2006
There have been the following changes of perimeter in 2006:
- Full consolidation of the new Indian subsidiary, AMCO-Saft India Ltd, and elimination of the 49% minority interest
- As previously disclosed, a change in accounting principle regarding jointly-controlled joint ventures, which are now consolidated using the equity method. This applies to JC-S (newly consolidated in 2006) and the ASB/MSB joint venture with EADS, which previously was proportionately consolidated. Saft's 2005 financial statements have therefore been restated to consolidate ASB/MSB using the equity method.
Review of 2006 results
John Searle, Chairman of the Management Board, added: "Given the difficulties faced in 2006, Saft's results demonstrate the underlying strength and profitability of the Group.
As previously announced, Specialty Battery Group sales to the US Army fell by EUR 35m to just under EUR 20m due to overstocking by that customer. However, net 10% sales growth across the remainder of SBG segments was an excellent performance. SBG's factory in China was successfully completed and has started manufacturing and shipping in volume to meet local demand.
The Industrial Battery Group delivered a solid performance with a 3.9% increase in sales at constant rates and perimeter. Our new Indian subsidiary also contributed a further 0.9% of incremental sales growth. However, the EBITDA margin was impacted by increasing nickel costs, although still remains strong at 22.2%.
Rechargeable Battery Systems had a very poor year. Profitability was adversely affected by increasing nickel costs, a product failure and labour inefficiency during the implementation of the social plan in H1. However, on the positive side, the strategic segments showed modest sales growth, and RBS's Nersac site in France is having an increasingly important role in JC-S's future.
I am pleased to announce that Saft will propose a dividend of EUR 0.68 per share to the Annual General Meeting. This is an increase of 4.6% and represents approximately 33% of 2006 underlying net income."
Outlook
For 2007, Saft expects organic sales volume growth for the IBG and SBG divisions to be in line with the medium term outlook of 4 - 5%. In addition, there will be sales growth in IBG due to the nickel-related price increases already applied on 1 July 2006 and 1 January 2007, plus any future price increases, which will be dependent on future nickel costs. All these price increases are applied to new orders, and are therefore subject to a time lag of c. 6 months.
Saft does not expect organic sales growth for RBS. Again sales will benefit from nickel-related surcharges, although this is likely to result in reduced volumes, such that no absolute sales growth is expected in 2007.
Therefore, on the assumption that 2007 nickel costs average EUR34k per tonne (the same as at 31 December 2006), then Saft estimates its 2007 results will be in the following ranges:
- Sales - EUR 580m to EUR 600m
- EBITDA - EUR 99m to EUR 103m
- EBIT - EUR 71m to EUR 75m
- Net income - EUR 34m to EUR 38m
The above estimates assume:
- Nickel costs average EUR 34k per tonne over 2007;
- IBG increase prices further, for new orders received from 1 April 2007. However, this will only materially impact sales from Q4 2007;
- Increasing investment in research and development at JC-S;
- Current economic conditions;
- Constant exchange rates;
- An effective tax rate of 33%.
However, profitability will of course be impacted by volatile nickel costs. For every EUR1k per tonne by which the average price of nickel exceeds (or is less than) EUR34k during 2007, Saft expects that the above estimates for EBITDA and EBIT would reduce (or increase) by c. EUR0.9m.
John Searle, Chairman of the Management Board, concluded: "I am confident that Saft will see a return to sales growth in 2007. Underlying performance will remain good, but will clearly be impacted until nickel costs stop rising. However, I expect that profitability levels will be restored when nickel costs stabilise."
About Saft
Saft (Euronext: Saft) is a world specialist in the design and manufacture of high-tech batteries for industry. Saft batteries are used in high performance applications such as industrial infrastructure and processes, transportation, space and defence. Saft is the world's leading manufacturer of nickel-cadmium batteries for industrial applications and of primary lithium batteries for a wide range of end markets. The group is also the European leader for specialised advanced technologies for the defence and space industries. With approximately 3,900 employees worldwide, Saft is present in 18 countries. Its 18 manufacturing sites and extensive sales network enable the group to serve its customers worldwide.
For more information, visit Saft at www.saftbatteries.com
Appendices
Consolidated income statement
in EUR million Year ended Year ended
31/12/2006 31/12/2005
Restated
Revenues 560.2 566.2
Cost of sales (395.7) (388.8)
Gross profit 164.5 177.4
Distribution costs (32.8) (32.6)
Administrative expenses (40.9) (40.4)
Transaction expenses - (5.7)
Research and development expenses (17.3) (18.7)
Restructuring costs (0.6) (4.5)
Other operating income and expenses 12.0 2.1
Operating Profit 84.9 77.6
Finance costs-net (12.0) (45.8)
Share of profit / (loss) of (4.1) 0.8
associates
Profit before Income tax 68.8 32.6
Income tax expense (21.9) (12.2)
Profit for the period 46.9 20.4
Attributable to :
Equity holders of the company 46.9 20.4
Minority interest - -
Earnings per share (in EUR per share):
Basic 2.54 1.10
Diluted 2.54 1.10
Consolidated balance sheet (1 of 2)
ASSETS
in EUR million At 31/12/2006 At 31/12/2005
Restated
Non-current assets
Property, plant and equipment, 107.5 105.1
net
Assets held under finance 3.3 3.3
leases
Investments in associates 21.2 10.1
Investment properties 0.5 0.7
Goodwill 111.5 119.2
Intangible assets, net 247.7 252.8
Investments in related 0.4 0.4
undertakings
Deferred income tax assets 10.6 17.3
Financial receivables 2.3 1.4
505.0 510.3
Current assets
Inventories 71.3 66.9
Trade and other receivables 136.5 119.9
Derivative financial 1.8 4.3
instruments
Cash and cash equivalents 61.6 64.1
271.2 255.2
Total assets 776.2 765.5
Consolidated balance sheet (2 of 2)
LIABILITIES AND EQUITY
in EUR million At 31/12/2006 At 31/12/2005
Restated
Shareholders' equity
Ordinary shares 18.5 18.5
Share premium (2.6) 15.5
Treasury shares (0.6) -
Cumulative translation adjustment (3.9) 2.3
Fair value and other reserves 13.8 9.3
Group consolidated reserves 81.5 27.4
Minority interest in equity 0.7 -
Total shareholders' equity 107.4 73.0
LIABILITIES
Non-current liabilities
Contingent advances 5.2 5.2
Debt 352.4 394.9
Other non-current liabilities 2.9 3.1
Deferred income tax liabilities 63.7 56.7
Pensions and other long-term employee 11.1 12.2
benefits
Provisions for other liabilities and 45.0 50.6
charges
480.3 522.7
Current liabilities
Trade and other payables 150.8 138.3
Taxes payable 5.3 3.8
Debt 9.8 4.0
Derivative instruments 4.2 0.8
Pensions and other long-term employee 0.3 0.5
benefits
Provisions for other liabilities and 18.1 22.4
charges
188.5 169.8
Total liabilities and equity 776.2 765.5
Consolidated cash flow statement
in EUR million Year ended Year ended
31/12/2005
31/12/2006 Restated
Cash flows from operating activities
Cash flow from operations 83.0 98.0
Interest paid (12.6) (24.7)
Income tax paid (10.4) (11.8)
Net cash provided by operating 60.0 61.5
activities
Cash flows from investing activities
Acquisition of subsidiaries, net of (1.7) -
cash acquired
Purchase of property plant and (21.5) (14.9)
equipment (PPE)
Purchase of intangible assets (6.5) (7.2)
Proceeds from sale of PPE 1.0 0.2
Proceeds from sale of 2.5 0.1
available-for-sale financial assets
Purchases of short-term securities (3.4) (0.1)
Interest received 1.6 2.8
Net cash used in investing activities (28.0) (19.1)
Cash flows from financing activities
Proceeds from issuance or diminution of - 22.2
shares
(Purchase) - Sale of treasury shares (0.6) -
Proceeds from borrowings - 387.9
Repayments of borrowings (20.2) (479.9)
Cash received on interest rate SWAP - 3.9
settlement
Increase / (Decrease) in other (0.3) (1.7)
non-current liabilities
Dividends paid to company shareholders (12.0) -
Net cash used in financing activities (33.1) (67.6)
Net decrease in cash and bank (1.1) (25.2)
overdrafts
Cash and bank overdrafts at beginning 64.1 87.5
of period
Exchange gains/(losses) on cash and (1.4) 1.8
bank overdrafts
Cash and bank overdrafts at end of 61.6 64.1
period