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ZF to Boost R&D Following Record Sales

In 2017, ZF spent €2.2 billion on research and development Photo by ZF

By Joseph R Fonseca

ZF Friedrichshafen AG will increase research and development spending again in 2018 following a year of record sales, announced CEO Wolf-Henning Scheider at the company's annual press conference in Friedrichshafen Tuesaday.

ZF ended the fiscal year 2017 with €36.4 billion in sales, which, when adjusted for exchange rate effects and M&A activities, elicited organic growth of 6 percent. ZF also further reduced the debt incurred from an acquisition in its automotive business and posted a higher adjusted EBIT of €2.3 billion, despite increased research and development costs.
ZF spent €2.2 billion on research and development in 2017, an increase of almost 15 percent compared to 2016. This year, ZF is set to channel "significantly more than two billion" into development work globally, with the aim of advancing electric drives and the hybridization of transmission technology as well as vehicle safety systems and automated driving, the company said.
The budget allocated to R&D will be raised from 6.1 percent to around 6.5 percent this year. ZF said it will also continue investing in property, plant and equipment (2017: €1.4 billion). Two new plants for the production of electric drive components are planned, among other things.
In 2017, ZF experienced a nominal increase of 3.6 percent to €36.4 billion in Group sales (2016: €35.2 billion). Adjusted for exchange rate effects and M&A activities, organic sales growth is six percent.
ZF saw mixed regional growth. In Europe and North America, sales rose by over three percent. Organic growth of eight percent in the Asia-Pacific region was reduced to around two percent by the negative currency effect of the Chinese Renminbi. Sales in South America increased significantly by around 26 percent, coming from a low level after the economic crisis there has, to a large extent, been overcome, the company said.
The headcount for the ZF Group was 146,148 on the effective December 31, 2017 (2016: 136,820). Additional posts were created mainly in China, Mexico, Portugal, the U.S. and Germany, most of them within the Active & Passive Safety Technology, E-Mobility, Car Chassis Technology and Car Powertrain Technology Divisions. Of these, around 1,700 worldwide were attributed to research and development alone.
Last year, ZF not only increased its sales but also its profit situation. Adjusted earnings before interest and taxes (EBIT) increased from €2.2 billion to €2.3 billion; the adjusted EBIT margin was equal to the previous year's, at 6.4 percent. Both sales and earnings are therefore at the upper end of the amounts predicted early in 2017. The adjusted free cash flow amounted to €1.8 billion at the end of last year (2016: €2.0 billion). The equity ratio has risen again, from 21 to 24.4 percent. "We are looking back at a profitable and successful year," said Dr. Konstantin Sauer, chief financial officer at ZF. "We have improved our processes and cost structures within a challenging environment, and have become even more productive. We have therefore been able to finance higher budgets for research and development, at the same time improving the earnings quality."
Taking into consideration the volatile state of global market development, ZF CEO Scheider predicts organic growth of around five percent for 2018. As in the previous year, ZF is aiming to achieve an adjusted EBIT of around six percent and an adjusted free cash flow of over one billion euros.

Mar 28, 2018

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