Leoni AG Business Report FY ended Dec. 2019

Financial Overview

 (in million EUR)
  FY ended Dec. 31, 2019 FY ended Dec. 31, 2018 Rate of change (%)
Overall
Sales 4,845.7 5,101.1 (5.0)
EBIT (383.9) 144.3 -
Wiring Systems Division
Sales 3,027.5 3,167.5 (4.4)
EBIT (370.5) 80.2 -
Wire & Cable Solutions Division
Sales 1,818.3 1,933.6 (6.0)
EBIT (14.0) 65.8 -

Factors
1) Net Sales
-Sales in the fiscal year ended December 31, 2019 decreased by 5.0% from the previous year to EUR 4,845.7 million. Weaker demand from the automotive industry caused decreased sales volumes of wiring systems and automotive cables. In addition, sales of special cables and cable systems for industry also decreased. Foreign currency exchange effects increased sales slightly and was mostly offset by changes in copper prices and changes in consolidation scope.

2) EBIT
-The Company’s EBIT for the fiscal year ended December 31, 2019 was a loss of EUR 383.9 million, compared to earnings of EUR 144.3 in the previous year. In addition to the Company’s decline in sales, the Company had ramp-up problems at its production facility in Merida, Mexico. Exceptional items caused a loss of EUR 233 million, primarily from provisions for contingent losses totaling EUR 119 million and impairment charges of EUR 77 million. The Company also had expenses of EUR 86 million from its Value 21 performance and strategy program, primarily consisting of consulting and restructuring costs.

3) Wiring Systems Sales
-In the fiscal year ended December 31, 2019, the Wiring Systems Division had sales of EUR 3,027.5 million, a decrease of 4.4% from the previous year. The weakening of the automotive market was the primary reason for the decline in sales. As sales declined, the Company decreased production, specifically in China and Europe.

4) Wire & Cable Solutions Sales
-Sales for the Wire & Cable Solutions Division in the fiscal year ended December 31, 2019 decreased by 6.0% from the previous year to EUR 1,818.3 million. The division’s sales comprised of cables for the automotive industry decreased by approximately 7%. High-speed data cables remained in demand, while demand for standard cables declined. Positive gains from currency translation effects were canceled out by losses caused by changes in copper pricing.
 

Restructuring

VALUE 21
-The Company presented the cornerstones of its VALUE 21 performance and strategy-enhancement program. The Company is facing a sustained challenging market environment, particularly in China. In addition, certain OEMs have significantly reduced their delivery expectations for the next months with respect to the Wiring Systems Division. By 2022, VALUE 21 is expected to deliver full run rate structural savings of around EUR 500 million annually compared with 2018. The program entails restructuring costs of approximately EUR 120 million, half of it related to headcount and most of which will incur in the 2019 and 2020 financial years. To date, businesses have been identified with annual sales of up to EUR 500 million for which the Company will consider all options. The Company intends to change its corporate structure into a financial holding company that is lean and geared to functions relevant to the capital market with two divisions that operate entrepreneurially and are managed on a stand-alone basis. The Company will focus more on cash generation as well as profitability and intends to restrict organic growth in its Wiring System Division to the level of market growth. These measures will have a substantially positive effect on cash and earnings in the medium term. (From a press release on March 17, 2019)

-The Company has reviewed the existing group structure and strategy for each of its divisions. This also included a review of the optimal future ownership structure of Wire & Cable Solutions Division (WCS) and Wiring Systems Division (WSD) to determine how both divisions can achieve their full potential. Against this background, the Company is preparing a separation of WCS through a stock market listing or sale. To date, no final decision has been taken in this regard. Following a potential separation, the Company’s primary focus would be on the development of WSD. With the focus on WSD, the Company would be able to concentrate its resources on the transition towards a global solutions provider for the automotive sector and aims to capture emerging opportunities on the energy and data side. WCS expects to emerge as a leading provider of engineered cables and interconnect solutions with a strong position in its focus areas to further develop its long-term growth potential. (From a press release on July 10, 2019)

-The Company remains on track with the implementation of VALUE 21 and was able to implement 35% of its planned initiatives by September 30 2019. The implemented initiatives will lead to gross cost savings of more than EUR 150 million per year, most of which will take effect in 2020. The Company expects that the implementation of all planned VALUE 21 measures, before offsetting effects, will achieve annual gross cost savings of EUR 500 million, starting from 2022. Due to the implementation of VALUE 21 initiatives, Leoni incurred costs totalling approximately EUR 53 million in the third quarter of 2019. In the period from January to September 2019, VALUE 21 costs amounted to EUR 72 million. The majority of the costs incurred in the third quarter are connected to the initiated headcount reduction of more than 500 jobs in high-wage countries. Compulsory redundancies were largely avoided, especially in Germany. The Company is continuing to drive the carve-out process of its Wire and Cables Solutions division. The Company still expects to implement the announced separation of the division in the 2020 financial year. (From a press release on November 13, 2019)
 

Business Partnership

-The Company and relayr, a specialist in industrial solutions involving the IoT, announced that they are entering a strategic partnership to work on linking intelligent cable and automation systems with IoT technologies. The upcoming solutions enable carmakers and their suppliers to reduce unplanned downtime of robotic manufacturing lines and raise production efficiency. Through this partnership, the Company and relayr will be jointly developing and providing an intelligent solution for predictive maintenance and monitoring of robot lines in car manufacturing based on the LEONiQ technology and relayr’s IoT portfolio. Together, the two companies will realize the first test installations in car production as early as 2019 in order then to offer their solutions to a broad customer base in 2020. (From a press release on April 4, 2019)
 

Awards

-In May 2019, Jaguar Land Rover presented the Automotive Supplier Excellence Award to the Company for its flexibility and reliability. The Company supplies various Jaguar Land Rover vehicle models with cable harnesses and wiring system components. The Company manufactures these parts at sites in Cairo, Egypt; Malosiste, Serbia; and Arad, Romania. Jaguar Land Rover’s Automotive Supplier Excellence Award is only given to 15 companies out of its 3,500 suppliers each year. (From a press release on June 6, 2019)

 

R&D Expenditure

 (in million EUR)
  FY ended Dec. 31, 2019 FY ended Dec. 31, 2018 FY ended Dec. 31, 2017
Wiring Systems Division 144 133 113
Wire & Cable Solutions Division 15 19 17
Other 2 (2) 4
Total 161 150 134


R&D Structure

Number of Employees in R&D  Dec. 2019 Dec. 2018 Dec. 2017
Wiring Systems Division 1,565 1,844 1,278
Wire & Cable Solutions Division 296 415 420
Total 1,861 2,259 1,698

 

R&D Activities

-Generally, the Wiring Systems Division has focused its research and development on the themes of connected mobility, autonomous mobility, improving productivity and automation, electrified mobility, and intelligent solutions and services. The division is focused on customized wiring systems and high-voltage battery systems.

-Research and development in the Wire & Cable Solutions Division has focused on electromobility, specifically in the areas of cooled charging cables and high-voltage cables. The division has continued development of an automotive Ethernet system for data transmission as well as begun development in inductive charging.
 

Product Development

Intelligent components for fail-safe power wiring systems
-The Wiring Systems Division has expanded its product portfolio with additional intelligent components designed for fail-safe power wiring systems. Fail-safe power wiring systems are necessary for autonomous vehicles. The Company has adapted prototypes of those components for various use cases.

Components for high-voltage wiring systems
-The Company’s Wiring Systems Division has further developed components for high-voltage wiring systems and high-voltage storage. These include sensor cable looms and module interconnectors. The Company aims to add high-voltage junction boxes to its portfolio in the future.

Joint development of vehicle concept
-The Wiring Systems Division contributed towards the development of a vehicle concept with its customers, specifically in the area of power wiring systems. The Company hopes to implement the knowledge gained from the project to vehicle models that will be manufactured starting in 2025.

High-power charging cable for electric vehicles
-The Company’s Wire & Cable Solutions Division has developed a new high-power charging cable for electric vehicles. It has already produced development samples which are being tested by customers and agencies. In addition, the Company has also developed silicone high-voltage cables.

Technologies shown at Electric & Hybrid Vehicle Technology Expo
-The Company will present technologies for electromobility at the Electric & Hybrid Vehicle Technology Expo. The Company will illustrate the wide variety of its cables, solutions for fast charging technology, power supplies with high-voltage cables and its LEONiQ digital cable technology. A special High Power Charging cable for liquid-cooled charging systems ensure that the temperatures in the cable and connector do not exceed a defined threshold. The Hivocar high-voltage cables provide strong performance when it comes to wiring numerous components and the powertrain of electric vehicles. They stably and reliably carry current to the high-voltage battery, via the inverter onward to the electric motor as well as to ancillary components such as A/C compressors and electric heating. (From a press release on April 29, 2019)
 

Patents

-In the fiscal year ended December 31, 2019, the Company registered 45 patents and utility models, of which 21 were from the Wiring Systems Division and 24 were from the Wire & Cable Solutions Division.
 

Capital Expenditure

 (in million EUR)
  FY ended Dec. 31, 2019 FY ended Dec. 31, 2018 FY ended Dec. 31, 2017
Wiring Systems Division 244.2 204.7 163.9
Wire & Cable Solutions Division 106.8 114.2 107.8
Other 6.1 24.0 9.7
Total 357.1 342.9 281.4


-The Company’s capital expenditure in the Wiring Systems Division during the fiscal year ended December 31, 2019 focused on new buildings and plant expansions in Eastern Europe and North Africa.

-The Wire & Cable Solutions Division’s capital expenditure focused primarily on the construction of its Factory of the Future in Roth, Germany as well as increasing production capacity of plants in Asia, the Americas and Eastern Europe. The division’s production capacity increase was targeted towards data cables, sensor cables, high-voltage cables and charging cables.
 

Investment outside Germany

<Mexico>
-The Company held a foundation-laying ceremony for an expansion of its Wire & Cable Solutions production facility in Cuauhtemoc, Mexico. The initial expansion is expected to increase the size of the facility by 7,000 square meters with the option in the future for a further 3,000-square-meter expansion. This will increase the production capacity of EV charging cables and Hivocar high-voltage cables for vehicles with alternative powertrains. With the expansion, the production facility will comprise 28,792 square meters of production area and will be able to add 100 new employees. The Company will invest approximately USD 25 million for the expansion of the plant. (From a press release on August 15, 2019)