Poor Performance at Leoni »Earnings in 2018 Are Very Disappointing and Unacceptable«

Schlechte Geschäftszahlen von Leoni in 2018.
Poor Performance at Leoni: The suspension of the dividend for the 2018 financial year will be proposed to the 2019 Annual General Meeting 2019.

Leoni intensifies measures to stabilize the business and proposes a suspension of the dividend. The reason for this is the poor business performance of last year, especially the last quarter.

The German manufacturer of wires, cables, and wiring systems, Leoni, had expected sales of around EUR 5.0 billion, EBIT of around EUR 196 million, a negative free cash flow of up to EUR 150 million and an investment ratio (excluding investments in the factory of the future) of 5 percent for the financial year 2018. In fact, developments are looking drastically worse:  In the last quarter of 2018, the company generated preliminary sales of EUR 1.2 billion and preliminary earnings before interest and taxes (EBIT) of EUR 19 million.

In fiscal year 2018, the company generated preliminary sales of EUR 5.1 billion (2017: EUR 4.9 billion), preliminary EBIT of EUR 144 million (2017: EUR 227 million including positive special effects of around EUR 30 million) and preliminary free cash flow of EUR 147 million (2017: EUR 11 million). The investment ratio (excluding investments in the factory of the future) was 6 percent (2017: 5 percent). »Our result for 2018 is very disappointing and unacceptable. The problems are much more serious than before and the surprisingly poor development in the fourth quarter, particularly in the Wiring Systems division, highlights the need for a far-reaching performance program,« says Aldo Kamper, CEO of Leoni. At the end of the financial year 2018, the company had a stable equity ratio of 31 percent (2017: 33 percent). The debt ratio (net debt to EBITDA) is 2.0 (2017: 1.1).

These Divisions Are Especially Critical

According to the current preliminary figures, the Wiring Systems Division (WSD) generated sales of EUR 772 million in the fourth quarter of 2018 (Q4 2017: EUR 806 million) and EBIT of EUR 26 million (Q4 2017: EUR 27 million). For the year as a whole, this division generated sales of EUR 3.2 billion (2017: EUR 3.1 billion) and EBIT of EUR 80 million (2017: EUR 118 million). Earnings in the fourth quarter were unexpectedly impacted by higher start-up costs, especially at the new Mexican plant, a deterioration in the performance of individual plants, and unachieved savings targets.

In the fourth quarter, the Wire & Cable Solutions (WCS) Division generated sales of EUR 470 million (Q4 2017: EUR 469 million) and EBIT of EUR 9 million (Q4 2017: EUR 14 million). For the year as a whole, the division recorded sales of EUR 1.9 billion (2017: EUR 1.9 billion) and EBIT of EUR 66 million (2017: EUR 105 million including a special effect of EUR 24 million). The deterioration in earnings is, among other things, due to an unfavorable product mix and burdens from the valuation of copper inventories as of the reporting date.   

2020 Targets Not Achieved

Based on the developments in fiscal 2018 and the current market environment, the management board expects sales of around EUR 5.2 billion in 2019. Due to the persistently higher burdens from the project start-up in Mexico, EBIT is expected to be between EUR 100 million and EUR 130 million. Based on these expectations for 2019, Leoni will not achieve its previous medium-term targets for 2020.

»In the coming months, we will concentrate on stabilizing the company. The focus is clearly on Mexico; the first measure we have taken is to appoint a dedicated team of local experts. We are also imposing even stricter cost discipline on the company in the short term. We are currently working on further performance measures and will explain the details on 19 March,« says Kamper.

Due to the current cash flow situation and the debt ratio, the Board of Directors and Supervisory Board intend to deviate from the previous dividend policy: The suspension of the dividend for the 2018 financial year will be proposed to the Annual General Meeting 2019.