03/26/2015

Financial year 2014 considerably impacted by Group restructuring and realignment – transformation process started


For Vossloh, the 2014 financial year was substantially impacted by the restructuring and realignment of the company. A comprehensive status appraisal initiated in early summer 2014 ushered in the transformation process that has been underway since then and also necessitated substantial adjustments to the original forecast for financial year 2014. The required adjustments in goodwill, the actualization of project calculations, correction of an overly optimistic assessment of business development as well as restructuring costs for individual business units resulted in a negative EBIT of €(171.6) million. The reported EBIT thus came out within the range forecasted since July 2014 of between €(150) and €(180) million. Excluding all special items, an adjusted EBIT of €30.6 million was achieved. The adjusted EBIT margin amounted to 2.3 percent.

Group sales rose by 1.8 percent to €1,323.9 million in 2014. In summer 2014, a growth corridor of up to 3 percent was communicated. At approximately €1,368 million, orders received were below the prior year’s figure, which was largely impacted by one major project order of €250 million. In 2014, orders received once again exceeded sales generated. The book-to-bill ratio – the ratio between orders received and sales – was 1.03. The order backlog at the end of the financial year came up to €1,751 million, rising 2.6 percent.

"We took forward-looking, far-reaching decisions in 2014. In 2015, we are working intensively on achieving operational improvements. At the same time, we are also implementing our new strategy. Earnings quality is therefore increasing gradually. We strive for the goal to complete Vossloh's transformation by 2017", says Dr. h.c. Hans M. Schabert, Chairman of the Executive Board at the Group. At the Annual General Meeting on May 20, 2015, the Executive Board and Supervisory Board will propose to shareholders that dividend payments be suspended for financial year 2014 due to the significantly negative net income of €(205.7) million.


Rail Infrastructure division
The Rail Infrastructure division, which until December 31, 2014 included all activities related to products and services for rail infrastructure, achieved sales of €868.9 million, on about the same level of the previous year (€875.5 million). As expected, the Fastening Systems business unit recorded a decrease in sales due to the fact that extraordinarily high sales in Asia were reached in the previous year as a result of major projects. In comparison to the previous year, sales dropped by more than 12 percent to €331.0 million. In contrast, revenue at Vossloh Switch Systems increased by 6.4 percent up to €473.1 million. Vossloh Rail Services recorded a significantly increase in sales by 22.3 percent. Sales reached €69.6 million, helped by positive development from mobile grinding services and comprehensive logistics services.

The EBIT for the Rail Infrastructure business unit was only slightly positive at €11.6 million. In particular, high special items had a negative impact in 2014. The largest single item was a goodwill impairment in the Switch Systems business unit. Adjusted for special items, EBIT reached €79.5 million. At the end of the year, order backlog amounted to €501.7 million and was slightly above the level of €496.0 million at the end of the previous year.

Transportation division
In the Transportation division, which includes rail vehicles, as well as vehicle components and related services, sales of €455.0 million for the financial year significantly exceeded those from the prior year. This sales growth is attributable solely to Vossloh Rail Vehicles: revenue in this business unit increased, particularly due to a contract for the delivery of Tramlinks to the Brazilian port city of Santos, as well as increasing sales from EURO 4000 locomotives. At Vossloh Locomotives, sales were down due to a decline in demand. The high expectations for Vossloh Electrical Systems were not reached due to delays in order processing.

In 2014, EBIT for the Transportation division was significantly burdened by special items and amounted to €(152.3) million. Main costs were incurred from the realignment and restructuring of Vossloh Locomotives and Vossloh Electrical Systems as well as from the updating of project calculations at Vossloh Electrical Systems. Adjusted for special items, EBIT for the Transportation division amounted to €(33.6) million. At the end of the financial year 2014, the division recorded order intakes amounting to about €494 million. Compared to the previous year (€687.0 million), when a major project from Southern Africa was issued, orders received were lower. The order backlog of the Transportation division at €1,250.0 million by the end of financial year 2014 was higher than at the reporting date of the previous year (€1,211.1 million).

New strategy / new Group structure from January 1, 2015
Vossloh has repositioned itself from the beginning of financial year 2015 and initiated a transformation process to be implemented by 2017: the focus of its operating activities is now on products and services related to rail infrastructure. These activities constitute the Group's core business and are provided by three divisions – Core Components, Customized Modules and Lifecycle Solutions.

The activities of the current Vossloh Fastening Systems form the initial core of the new Core Components division. The new Customized Modules division incorporates the current Switch Systems business unit. The new Lifecycle Solutions division is built around the current Rail Services business unit. The three new rail infrastructure core divisions will be monitored and controlled according to the fundamental principles of their respective business models, this means in accordance with product, project, and service orientation. The Transportation division, which no longer belongs to the core business, will continue to be made up of the locomotive, local transport rail vehicles and electric components businesses. It will continue to operate as Vossloh's fourth division. The objective, however, is to sell the business, in total or in parts, or to transfer it to an appropriate partner outside of Vossloh AG by 2017 at the latest.

The Group's operating activities will continue under the umbrella of Vossloh AG. Since mid-2014 however, the Group no longer acts as a purely management or financial holding company, but rather, as an integral top level of management, exerting direct operating influence over the divisions. All divisions work closely together and externally present themselves uniformly and in a coordinated fashion as "One Vossloh".

The Group is operating according to three strategic principles:


With these management control criteria and measures, Vossloh is going to be transformed and developed into a new rail infrastructure company by 2017.

Outlook:
Vossloh confirms the forecast for financial year 2015: from today's standpoint, the Group's sales growth for the ongoing business year will amount to between 3 and 4 percent. Expected earnings improvements from ongoing restructuring and realignment measures will ensue gradually and profitability will continue to be negatively burdened the weak margins in multi-year projects in the Transportation division. On the basis of the current portfolio structure, the Executive Board therefore expects an EBIT margin for 2015 of between 3 and 4 percent.

Due to the weak margins in multi-year projects as well as the planned intensified expenses for the acceleration of innovation, the EBIT margin in 2016 is also likely to remain below the EBIT target margin forecast for 2017. On the basis of the current portfolio structure, this is expected to be between 5 and 6 percent.


The most important key performance indicators at a glance
Vossloh Group 2013 2014
Incoming orders € million 1,472.5
 1,367.7
Order backlog € million 1,707.1
 1,750.9
Sales € million 1,300.7
 1,323.9
EBIT € million 52.7
 -171.6
EBIT margin % 4.1
 -13.0
ROCE1 % 5.9
 -21.2
Value added € million -22.8
 -252.6
Net income € million 23.6
 -205.7
Earnings per share € 1.25 -16.46
1 Based on average capital employed
Note: Since 2014, new accounting standards are pertinent for listed companies in the EU which, among other things, effect the determination of entities to be included in consolidation, particularly the inclusion of joint ventures. The now valid IFRS 11 "Joint Arrangements" no longer allows for a proportional consolidation of equity held by the Group in joint ventures, but requires accounting at-equity. In accordance with these methods, the equity holding, in simple terms, reflects the proportion of net assets in the joint venture, while a proportional consolidation contains the individual assets and debt, as well as income and expenses proportional to the company's assets. As a consequence of IFRS 10 "Consolidated Financial Statements" also being applied for the first time, a company of the Switch Systems business unit was deconsolidated and since that time has also been subject to at-equity accounting. In accordance with the new standards' transitional provisions, new regulations are to be used at the beginning of the corresponding period – financial year 2013 – in order to meet the principle of comparability of information. For this reason, all relevant figures for financial year 2013 have been calculated on a comparable basis and may differ from figures published in the previous year. For the purpose of comparison and to avoid difficulties, only amounts that were calculated on a comparable basis and reported in the consolidated financial statements are included. The changes mostly effect the Switch Systems business unit and, to a limited extent, Rail Services.


Werdohl March 26, 2015


Media contact:
Lucia Mathée, MATHEE GmbH
Phone: (+49-23 92) 52-608
Email: presse@ag.vossloh.com

Investor contact:
Lucia Mathée, MATHEE GmbH
Phone: (+49-23 92) 52-609
Email: investor.relations@ag.vossloh.com


Vossloh is a global player in the rail technology markets. The core business is rail infrastructure. In addition, the Group is active in the areas of rolling stock and electric buses. Under the umbrella of Vossloh AG and since January 1, 2015, these activities have been allocated to the four divisions Core Components, Customized Modules, Lifecycle Solutions and Transportation. In financial year 2014, Vossloh generated sales of €1.32 billion with more than 5,700 employees.