SAFT GROUPE INTERIM FINANCIAL REPORT
first half-year 2015
OVER 4,000 PEOPLE COMMITTED TO OUR CUSTOMERS' FUTURE
Since 1918, world leading company for advanced batteries designed for industry
Contents
1 Interim management report 1
1.1 2015 first half revenue and consolidated results highlights 2
1.2 Results by division 3
1.3 Other items of consolidated income 6
1.4 Main cash flows over the period 7
1.5 Consolidated financial position 7
1.6 Other key events in the first half of 2015 8
1.7 Related-party transactions 8
1.8 Risks and uncertainties with regard to the second half of 2015 8
1.9 Outlook 9
1.10 Financial calendar 9
2 Condensed interim consolidated
financial statements 11
2.1 Consolidated income statement 12
2.2 Consolidated statement of comprehensive income 12
2.3 Consolidated statement of cash flows 13
2.4 Consolidated statement of financial position 14
2.5 Consolidated statement of changes in equity 16
2.6 Notes to the condensed interim consolidated financial statements 17
3 Statutory Auditors' review report
on the 2015 interim financial information 27
4 Statement by the persons responsible
for the interim report 28
Important legal information and cautionary statements:
The condensed interim consolidated financial statements for the six months ended 30 June
2015 presented in this document have been approved by the Management Board, reviewed by the Audit Committee and approved by the Supervisory Board of Saft.
Certain statements contained herein are forward-looking statements relating, in particular, to future events, trends, plans or objectives. By their nature, these forward- looking statements involve known or unknown risks and uncertainties that could cause Saft's actual results and objectives to differ materially from those expressed or implied in these forward-looking statements.
S AFT - IN T ERIM FINANCIA L REPOR T 2015
1
Interim management report
First half-year 2015
1.1 2015 first half revenue and
consolidated results highlights 2
1.2 Results by division 3
1.3 Other items of consolidated income 6
1.4 Main cash flows over the period 7
1.5 Consolidated financial position 7
1.6 Other key events in the first half
of 2015 8
1.7 Related-party transactions 8
1.8 Risks and uncertainties with regard
to the second half of 2015 8
1.9 Outlook 9
1.10 Financial calendar 9
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INTERIM MANAGEMENT REPORT FIRST HALF-YEAR 2015
2015 first half revenue and consolidated results highlights
1.1 2015 FIRST HALF REVENUE AND CONSOLIDATED RESULTS HIGHLIGHTS
(in € million) | Six months ended 30 June 2015 | Six months ended Six months ended 30 June 2014 2015/2014 30 June 2013 restated(1)growth in %(2)restated(1) |
Revenue Gross profit Gross margin (%) EBITDA(3) EBITDA margin (%) EBIT(4) EBIT margin (%) Operating profit Net profit from continuing operations Net profit/(loss) from discontinued operations Net profit for the period Total EPS (in € per share) EPS from continuing operations (in € per share) | 370.8 110.8 29.9% 57.5 15.5% 38.2 10.3% 38.3 30.1 - 30.1 1.12 1.12 | 330.1 0.4% 284.9 92.9 19.3% 77.7 28.1% 27.3% 49.1 17.1% 38.6 14.9% 13.5% 29.9 27.8% 19.2 9.1% 6.7% 29.4 30.3% 24.8 20.8 44.7% 15.4 - (5.2) 20.8 44.7% 10.2 0.80 40.0% 0.41 0.80 40.0% 0.61 |
(1) 2014 and 2013 condensed interim consolidated financial statements have been restated to be comparable with 2015 condensed interim consolidated financial statements 2015 following the application of IFRIC Interpretation 21 on the recognition date for liabilities for levies, other than income taxes, imposed by public authorities. The impact of the application of IFRIC 21 on the condensed interim consolidated financial statements is presented in note 2 to the condensed interim consolidated financial statements shown below.
(2) Percentages changes are at actual exchange rates except for revenue which is at constant exchange rates. The average EUR/USD exchange rate during H1
2015 was €1 = US$1.12, compared with €1 = US$1.37 during H1 2014.
(3) EBITDA is defined as operating profit before depreciation, amortisation, restructuring costs and other operating income and expenses. (4) EBIT is defined as operating profit before restructuring costs and other operating income and expenses.
Group revenuefor the first half of 2015 amounted to
€370.8 million, up by 12.4% compared with the first half of
2014 at actual exchange rates and up by 0.4% at constant exchange rates.
This reflects a 4.3% decrease in revenue in the second quarter at constant exchange rates, after a 5.9% increase in revenue in the first quarter of 2015 at constant exchange rates.
H1 2015 overall business performance includes a strong sales growth in transportation, civil electronics and space markets, a limited growth in sales of stationary back-up power batteries and a further reduction in defence activities.
Evolution of sales by division and market segment is presented below.
Sales of Li-ion batteries for the first half of 2015 decreased by almost 30% compared with the same period in 2014. This mainly results, as expected, from the sharp reduction in sales of Evolion® batteries to the Indian telecommunications network operator Reliance Jio Infocomm Limited but also, to a lesser extent, from lower sales of large battery systems for energy storage and renewable energy ('ESS' market). However, the Group recorded high order intake for lithium-ion batteries during the first half of the year. Accordingly, sales of lithium-ion batteries are expected to grow strongly during the second half of the year.
Gross profit stood at €110.8 million in the first half of 2015, an increase of €17.9 million or 19.3% over the first half of 2014. The application of IFRIC 21 led to a reduction in gross margin of €1.4 million in the first half of 2015 and €1.6 million in the first half of 2014.
Gross profit margin was 29.9% for the first half of 2015 (30.3% before the application of IFRIC 21), versus a restated gross profit margin of 28.1% for the same period in the previous year (28.6% before restatement following the application of IFRIC 21).
The strong increase in gross profit margin is mainly due to:
Q the positive impact of a stronger dollar against the euro;
Q the improvement in gross profit margin from increased sales volumes in traditional technologies;
Q a rise of more than €6.3 million in the negative contribution of lithium-ion production units from Jacksonville and Nersac compared with the first half of 2014.
EBITDA for the first half of 2015 amounted to €57.5 million (€58.9 million before the application of IFRIC 21), equating to an EBITDA margin of 15.5%, compared with restated EBITDA of €49.1 million or 14.9% of revenue in the first half of 2014 (EBITDA margin before the application of IFRIC 21 was 15.9% in the first half of 2015 and 15.4% in the first half of 2014). The
60 basis points increase of the EBITDA margin is mainly due to the favorable impact of foreign exchange rates, particularly a stronger US dollar against the euro.
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Results by division
After amortisations and depreciations of €19.3 million (versus
€19.2 million in H1 2014), EBIT marginin the first half stood at €38.2 million (€39.6 million before the application of IFRIC 21), representing a margin of 10.3% of revenue (10.7% of revenue before restatement following the application of IFRIC 21), compared with an EBIT margin of €29.9 million or
9.1% of revenue in the first half of 2014 (€31.5 million or 9.4% of revenue before restatement following the application of IFRIC 21).
After taking into account restructuring costs and other operating income and expenses, Group operating profitfor the first half of 2015 was €38.3 million, up 30.3% over the same period in the previous year. The operating margin thus amounted to 10.3% of revenue in the first half of 2015, an increase of 140 basis points compared to that recorded in the first half of 2014.
Net finance costs for the first half dropped by €1.0 million to reach €1.8 million. This reduction is mainly due to a foreign exchange gain of €3.1 million in the first half, versus a net foreign exchange gain of €1.5 million in 2014.
Income tax expense for the first half of 2015 amounted to
€7.2 million, representing an overall Group tax rate of 19.3%
compared with a restated rate of 23.0% in the first half of
2014. The reduction in the overall tax rate is mainly due to reversal of unused provisions for tax risks.
Net profit for the first half of 2015 was €30.1 million (including net profit attributable to owners of the parent of €30.2 million), versus a restated net profit of €20.8 million in the first half of
2014, marking a sharp increase of nearly 45%.
Basic earnings per share amounted to €1.12 for the first half of 2015, compared with a restated EPS of €0.80 in the first half of 2014, representing a 40% year-on-year increase.
1.2 RESULTS BY DIVISION
SECOND-QUARTER REVENUE BY DIVISION (UNAUDITED)
(in € million) | Second quarter 2015 | Change (in %) Second At actual At constant quarter 2014 exchange rates exchange rates |
IBG SBG TOTAL | 111.2 78.3 189.5 | 112.3 (0.9)% (12.2)% 63.5 23.3% 9.7% 175.8 7.8% (4.3)% |
The average EUR/USD exchange rate during Q2 2015 was €1 = US$1.10, compared with €1 = US$1.37 during Q2 2014.
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INTERIM MANAGEMENT REPORT FIRST HALF-YEAR 2015
Results by division
HALF-YEAR RESULTS BY DIVISION
Six months ended 30 June 2015 Six months ended 30 June 2014EBITDA(2) | |||||||
EBITDA | EBITDA(2) | Margin | |||||
Revenue | Change | EBITDA | Margin | Revenue | restated | restated | |
(€m) | (in %)(1) | (€m) | (in %) | (€m) | (€m) | (in %) | |
IBG | 220.9 | (3.9)% | 23.7 | 10.7% | 205.5 | 22.7 | 11.0% |
SBG | 149.9 | 7.5% | 38.3 | 25.5% | 124.6 | 29.8 | 23.9% |
Other | N/A | N/A | (4.5) | N/A | - | (3.4) | N/A |
TOTAL | 370.8 | 0.4% | 57.5 | 15.5% | 330.1 | 49.1 | 14.9% |
(1) Changes in revenue are expressed at constant exchange rates. The average EUR/USD exchange rate during H1 2015 was €1 = US$1.12, compared with
€1 = US$1.37 during H1 2014.
(2) 2014 and 2013 condensed interim consolidated financial statements have been restated to be comparable with 2015 condensed interim consolidated financial statements following the application of IFRIC Interpretation 21 on the recognition date for liabilities for levies, other than income taxes, imposed by public authorities. The impact of the application of IFRIC 21 on the condensed interim consolidated financial statements is presented in note 2 to the condensed interim consolidated financial statements shown below.
N/A: not applicable.
Changes in consolidated revenue by market segment are shown below:
Six months ended 30 June 2015 | Six months ended Change at constant 30 June 2014 exchange rates | |
Stationary back-up power and energy storage systems Transportation (aviation, rail and vehicles) Sales of battery components TOTAL IBG | 122.7 91.7 6.5 220.9 | 125.3 (13.8)% 73.9 13.1% 6.3 3.0% 205.5 (3.9)% |
Civil electronics Space & defence TOTAL SBG | 108.3 41.6 149.9 | 85.5 13.4% 39.1 (5.1)% 124.6 7.5% |
TOTAL CONSOLIDATED REVENUE | 370.8 | 330.1 0.4% |
A) INDUSTRIAL BATTERY GROUP (IBG)
At €220.9 million, the division's sales recorded during the first half of 2015 a 7.5% increase as reported but a 3.9% decrease at constant exchange rates.
After revenue growth of 6.3% at constant exchange rates during the first quarter, the second quarter recorded a significant decrease in activity, with revenue down 12.2% at constant exchange rates compared to the second quarter of the previous year.
The reduction in sales of the IBG division during the first half-year resulted mainly from a sharp reduction of almost
14% in sales of batteries for stationary back-up power and energy storage systems.Sales of batteries for industrial stationary systems continued to grow during the first half, despite weak sales to the oil market, especially in the Middle East. Sales to the telecommunications network market sharply decreased compared with the first half of 2014. This reduction in sales was expected given the anticipated
decrease in sales of Evolion® lithium-ion batteries to the Indian telecommunications network operator Reliance Jio Infocomm Limited, and despite strong growth in sales of nickel batteries for telecommunications networks in the United States.
Lastly, sales of batteries designed for energy storage applications ('ESS' or Energy Storage Solutions market) recorded a sharp decline in the first half of 2015, higher that anticipated at the beginning of the year.
Transportation markets continued to record a strong performance building on that of 2014, with an increase in first half-year sales of more than 13% at constant exchange rates. The industrial vehicle market segment recorded the strongest sales growth including an increase in sales of lithium-ion batteries of 45.0%. Sales to the aviation market continued to grow during the first-half of the year, driven by sales of lithium-ion batteries and despite a slowdown in the growth of sales of replacement batteries for commercial aviation. Lastly, sales to the railway segment continued to increase at a pace similar to that seen in 2013 and 2014.
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Results by division
Geographically, IBG division sales rose strongly in Europe and to a lesser extent in North America. They remained broadly stable in the Middle East, marked by a slowdown in the oil and gas market. Lastly, they fell sharply in Asia as a result of the major reduction in sales of lithium-ion batteries for telecommunications networks in India.
IBG revenue should resume growth during the second half of
2015, with an expected strong growth in sales of stationary batteries, driven by sales of Evolion® lithium-ion batteries to the telecommunications networks market. The transportation markets should see a slowdown in sales growth during the second half of 2015 compared with those in the first half.
EBITDA for the division for the first half of 2015 totalled
€23.7 million or 10.7% of revenue, compared with an EBITDA
of €22.7 million or 11.0% of revenue in the first half of
2014. The slight increase in EBITDA of the division covers a strong improvement in the profitability of operations as a consequence of a stronger US dollar against the euro. However, the improvement in profitability has been more than offset by the increase of more than €7 million in losses generated by the lithium-ion production units of Jacksonville and Nersac, compared with the first half of 2014. The increase in EBITDA margin generated by increased sales volumes of nickel batteries was largely offset by the increase in nickel purchasing costs, including hedging costs.
Lithium-ion batteries sales growth forecasted for the second half of the year should lead to a sharp reduction of the negative contribution of the lithium-ion production units of Jacksonville and Nersac to the EBITDA of the division over the same period.
B) SPECIALTY BATTERY GROUP (SBG)
SBG division revenue over the first six months amounted to €149.9 million, a 20.3% increase as reported and a 7.5% increase at constant exchange rates. Sales increased by
9.7% during the second quarter at constant exchange rates, following a rise by 5.2% recorded during the first quarter.
This excellent sales performance was driven by sustained strong growth in sales to the civil electronics marketsduring the second quarter, leading to an overall sales growth of 13.4% for the first six months of 2015. This business growth results from increased sales to many of the civil electronics markets in which the Group is present. Sales growth was particularly buoyant in the metering market while the oil drilling market recorded a sharp decline in business during the first half of the year. Europe has been the main driver of the growth in sales to civil electronics markets. Asia and North America recorded lower sales growth in the first half of 2015.
The space and defense marketsaw a 5.1% sales reduction during the first half of 2015. The contraction is attributable to the defense activities with sales falling by 15.1%, while the space market recorded, as anticipated, a sales growth of almost 15% during the first half of 2015. During the first half of the year, the Group renewed two long-term commercial agreements with leading global players in the space market.
The Specialty Battery Group division should continue to grow its revenue in the second half, but at a slower pace than during the first half of 2015.
At €38.3 million, EBITDA of SBG division strongly increased to 25.5% of revenue in the first half compared with an EBITDA margin of 23.9% in the first half of 2014. This strong improvement results equally from increased sales volumes and a favourable currency impact mainly consequential to a stronger US dollar against the euro.
C) OTHER ACTIVITIES
Corporate expenses that are not allocated to the operational divisions led to a negative EBITDA of the 'Other' division of
€4.5 million in the first half of 2015, compared with a restated EBITDA loss of €3.4 million for the same period in 2014. This evolution results from reversal in H1 2014 of provisions amounting to € 0.7 million.
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INTERIM MANAGEMENT REPORT FIRST HALF-YEAR 2015
Other items of consolidated income
1.3 OTHER ITEMS OF CONSOLIDATED INCOME
OTHER OPERATING INCOME AND EXPENSES
No other material operating income or expense items were recorded during the first half of 2015 and 2014.
OPERATING PROFIT
The Group's operating profit amounts to €38.3 million for the first half of 2015, compared with €29.4 million for the first half of 2014 when the Group incurred €0.5 million in restructuring costs. The application of IFRIC 21 had a negative impact of €1.4 million on operating profit in the first half of 2015 compared with a negative impact of €1.6 million during the first half of 2014.
Operating profit increased by more than 30% year-on-year, representing 10.3% of sales in the first half of 2015 compared with only 8.9% a year earlier.
NET FINANCE COSTS
Net finance costs in the first half of 2015 amounted to
€1.8 million compared with €2.8 million for the first half of
2014.
The net cost of debt was €3.6 million, compared with
€3.5 million in the first half of 2014. The composite interest rate of the Group's debt, net of hedging, was 3.26% in the first half of 2015, compared to a rate of 3.28% for the full year 2014.
The first-half 2015 reduction in net finance costs results from a €3.1 million foreign exchange gain, compared with a
€1.5 million foreign exchange gain for the same period in 2014. H1 2015 profit from foreign exchange is due to the conversion into euro of cash positions held in foreign currencies, in particular that in US dollar.
SHARE OF PROFIT/(LOSS) OF ASSOCIATES
The Group's share of the net profit for the first half of 2015 of ASB, its 50/50 joint venture with the Airbus group, was
€0.8 million compared with €0.4 million for the first half of 2014.
NET PROFIT FROM CONTINUED OPERATIONS
After accounting for the Group's 50% share of the profit of
ASB, its joint venture, representing a positive contribution of
€0.8 million during the first half of 2015, profit before income tax from continuing operations was €37.3 million for the first half of 2015, compared with €27.0 million for the same period in 2014.
Group income tax expense related to continuing operations totalled €7.2 million during the first half of 2015, representing a groupwide overall tax rate of 19.3%, versus a restated tax expense of €6.2 million in the first half of 2014, corresponding to a 23.0% Group tax rate on continuing operations. The reduction in the overall tax rate is mainly due to reversal of unused provisions for tax risks.
Accordingly, net profit from continuing operations during the first half of 2015 totalled €30.1 million, compared with a net profit of €20.8 million during the first half of 2014 on a like-for- like basis. The application of IFRIC 21 had a negative impact of
€0.9 million for the first half of 2015 compared with a negative impact of €1.0 million for the first half of 2014.
NET PROFIT
The consolidated net profit during the first half of 2015 totalled €30.1 million, compared with a restated net profit of
€20.8 millon during the first half of 2014, a sharp year-on-year increase of 44.7%.
Basic earnings per share amounted to €1.12 for the first half of 2015, compared with restated basic earnings per share of
€0.80 for the same period of 2014.
INTERIM MANAGEMENT REPORT FIRST HALF-YEAR 2015
Main cash flows over the period
1.4 MAIN CASH FLOWS OVER THE PERIOD
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash generated by operating activities amounted to
€43.1 million for the six-month period ended 30 June 2015, up by €15.3 million or 55% over the same period in 2014. The strong cash generation is the result of well-controlled working capital, which increased by €8.2 million or 7.2% at actual exchange rates for revenue growth of 12.3% at current exchange rates over the same period.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash used by investing activities in the first half of 2015 totalled €16.0 million, compared with €17.2 million in the first half of 2014.
Capital expenditures amounted to €14.3 million during the first half of 2015, stable over the same period of 2014.
Investments in intangible assets which are mainly consisting of capitalised development costs, amounted to €2.0 million, compared with €3.1 million during the first half of 2014. These investments relate to the development of new products intended to boost the Group's sales growth.
CASH FLOWS FROM FINANCING ACTIVITIES
Financing activities generated net cash of €6.0 million in the first half of 2015, while they used €7.4 million in the same period of the previous year.
The main cash flows from financing activities included the payment of a dividend to Saft shareholders in the amount of
€10.0 million (considering that 55% of shareholders opted for payment of the dividend in the form of shares) and proceeds of €15.7 million arising from capital increases following the exercise of stock options by Group employees in the first half of 2015.
FREE CASH FLOW
As a result of the increase in the Group's profitability, well- controlled working capital and broadly stable capital expenditures, the Group generated a free cash flow of
€27.4 million during the first half of 2015, compared with positive free cash flow of €10.6 million during the same period of the previous year.
1.5 CONSOLIDATED FINANCIAL POSITION
The Group's financial position at 30 June 2015 shows the following main changes compared with 31 December 2014:
Q a slight increase in non-current assets to €620 million;
Qstable aggregate values of current assets(1)and current liabilities(2);
Q a sharp increase in the Group's cash and cash equivalents to €190.5 million, after the €10.0 million dividend payment;
Q a €53.0 million increase in equity to €527.9 million, taking into account a €15.7 million increase following the exercise of stock options by Group employees;
Q lastly, a €10.3 million increase in gross debt to €237.9 million solely due to the effect of a stronger US dollar against the euro, as part of the Group's debt is denominated in that currency.
(1) Excluding cash and cash equivalents.
(2) Excluding financial liabilities and provisions.
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INTERIM MANAGEMENT REPORT FIRST HALF-YEAR 2015
Other key events in the first half of 2015
1.6 OTHER KEY EVENTS IN THE FIRST HALF OF 2015
ANNUAL GENERAL MEETING AND DIVIDEND
At the Annual General Meeting of 12 May 2015, Saft
Groupe SA's shareholders voted for a dividend payment of
€0.82 per share for the 2014 financial year, an increase of 5.1% over the dividend for the previous year. The General Meeting also approved the option for dividend payment in shares. Taking into consideration the procedures used, the issue price of shares was fixed at €31.34 per share. Shareholders representing more than 55% of the share capital opted for dividend payment in shares. The capital increase that followed
therefrom is described in note 5 to the condensed interim consolidated financial statements.
INVESTMENT PROJECTS
Major investments projects are currently underway to increase the Group's production capacity in primary lithium batteries in the United States, France, Israel and China. Individual projects represent investments of about €3 to 5 million.
1.7 RELATED-PARTY TRANSACTIONS
The nature of the transactions entered into by the Group with related parties remained unchanged compared with the situation described in note 28 to the 2014 consolidated financial statements, included on page 147 of the 2014 Registration Document filed with the French Financial Markets Authority (Autorité des marchés financiers) on 18 February 2015.
1.8 RISKS AND UNCERTAINTIES WITH REGARD TO THE SECOND HALF OF 2015
Saft considers that the main risks to which the Group is exposed are the same as those described on pages 23 to 34 of the 2014 Registration Document, whether related to the market environment in which the Group operates or operational risks such as those related to defects or non-quality products.
The main specific uncertainties for the second half of 2015 concern:
Q developments in the global economic situation - in the
United States, Europe and emerging countries - and their
impact on the market segments in which the Group operates, specifically the oil market but also, in connection with our ESS business, the markets for electricity generation and transmission as well as renewable energy storage;
Q developments in public procurement, in particular in the defence sector;
Q lastly, changes in foreign exchange rates, mainly the US
dollar to euro rate.
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Outlook
1.9 OUTLOOK
Given the Group's performance during the first half, we confirm our annual guidance of sales growth over 5% at constant exchange rates and an EBITDA margin of at least 15.8%.
Regarding sales, IBG revenue will return to growth during the second half of 2015, with expected strong growth in sales of stationary batteries, driven by sales of Evolion® lithium-ion batteries to the telecommunications networks market. The transportation markets should see a slowdown in sales growth during the second half of 2015 compared to the first half of the year.
The SBG division should continue to grow its revenues in the second half, but at a slower pace than during the first half of
2015.
With regards to profitability, lithium-ion battery sales growth forecasted for the second half of the year should lead to a considerable reduction in the negative contribution of the Jacksonville and Nersac lithium-ion production units to the EBITDA of the division over the same period.
1.10 FINANCIAL CALENDAR
The Group's indicative financial reporting schedule is as follows:
Q third-quarter 2015 revenue: 22 October 2015
Q 2015 annual revenue and results: 18 February 2016
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