Highlights of 2019/20 Half-Year
Results
- Group sales
US$1,565 million — down 7% compared to first half of the prior financial
year. Excluding the impact of foreign
exchange rate changes, sales decreased by 4% - Gross
profit US$357 million or 22.8% of sales (compared to US$398 million or 23.8% of
sales in prior half year) - Net profit attributable
to shareholders increased by 16% to US$162 million or 18.44 US cents per share
on a fully diluted basis - Underlying
net profit, excluding the net impact of significant non-cash and divested
items, decreased by 16% to US$106 million - Free cash
inflow from operations US$83 million (compared to an outflow of US$3 million in
prior half year) - Total debt
to capital ratio of 16% and cash reserves of US$232 million as of 30 September
2019 - Interim
dividend 17 HK cents per share (2.18 US cents per share) with a scrip dividend
alternative
HONG KONG, CHINA – Media
OutReach – 6 November
2019 – Johnson Electric Holdings
Limited (“Johnson Electric”), a global leader in electric motors and motion
subsystems, today announced its results for the six months ended 30 September
2019.
Total
Group sales for the first half of FY19/20 totalled US$1,565 million, a decrease
of 7% over the first half of the prior financial year. Excluding the impact of
foreign exchange rate changes, underlying sales decreased by 4%. Net profit
attributable to shareholders increased by 16% to US$162 million or 18.44 US
cents per share on a fully diluted basis. Underlying net profit, after
adjusting for the effects of a number of significant non-cash and divested
items, decreased by 16% to US$106 million.
Global
manufacturing is experiencing its sharpest and most geographically widespread
downturn since 2012. In this challenging operating environment, Johnson
Electric is continuing to make positive progress across a range of key
strategic initiatives aimed at further strengthening its competitive position and
its ability to adapt to what have become increasingly unstable and
unpredictable conditions for global trade.
Overview of Financial Results
The
Automotive Products Group (“APG”), which accounted for 79% of total Group
sales, reported a 1% decrease in sales on a constant currency basis compared to
the first half of the prior year. The strongest business unit performances came
from Engine and Transmission Management, Actuation Systems and Stackpole
International, which each benefited from a number of new programme launches and
sustained demand for advanced technology solutions that help to reduce
emissions and enable electrification.
APG’s modest decline in sales
revenue should be set against a sharp contraction in automotive industry
production volumes during the period under review. Global light vehicle
production declined by 6%, with all major geographic regions experiencing falls
in output. Most significant was the 13% decline in the China market, which has
been the industry’s largest source of demand growth for the past two decades.
The current slowdown in the overall Chinese economy includes the effect of
escalating trade tensions with the United States which has increased
uncertainty and weakened consumer confidence. Subdued macroeconomic activity
has had a similar effect on the car industry in Europe where production
decreased by 4%. Even in North America, which has been a comparative bright
spot in terms of jobs growth and consumer spending for much of 2019, light
vehicle production declined by 2%.
The
Industry Products Group (“IPG”), which contributed 21% of total Group sales,
recorded a 14% decline in sales in constant currency terms in the first half. A
combination of factors contributed to this disappointing performance. These
included depressed demand across a number of end markets due to the US-China
trade dispute and some customer-specific programme delays or cancellations. The
division has continued to deliver growth in several product applications, such
as ventilation, vital signs monitoring and semiconductor equipment; and the
evolution of its product mix towards higher value-adding technology has
maintained gross margins. Nonetheless, it is proving difficult to make progress
against the downturn in global manufacturing activity for IPG in the near term.
Gross
profit decreased by 10% to US$357 million — which as a percentage of sales
represented a decline from 23.8% to 22.8%. The year-on-year decrease in margins
reflected the combination of lower sales volumes, increased depreciation and
pricing pressure. However, comparing the second half of FY18/19 to the first
half of FY19/20, gross profit margins improved by 0.8%. The beginnings of this
turnaround in the trajectory of the Group’s gross margin is primarily due to
reduced material costs and lower direct labour expenses.
Group
operating profits amounted to US$192 million compared to US$171 million in the
first half of the prior financial year. The improvement in reported operating
income and in net profit attributable to shareholders was primarily due to a
substantial increase in the net contribution from Other Income and Expenses,
which itself comprised of a number of positive and negative non-cash items.
This included a US$41 million fair value gain, after deducting transaction
costs and other adjustments, related to an investment property in Hong Kong
that was divested in October 2019.
Interim Dividend
The
Board has today declared an interim dividend of 17 HK cents per share,
equivalent to 2.18 US cents per share (2018 interim: 17 HK cents per share).
The interim dividend will be payable in cash with a scrip alternative where a
4% discount on the subscription price will be offered to shareholders who elect
to subscribe for shares. Full details of the scrip dividend alternative will be
set out in a circular to shareholders.
The
interim dividend will be payable on 3 January 2020 to shareholders registered
on 27 November 2019.
Adapting to the Changing Operating Environment
Although
there have been recent indications that the United States and China may reach
some form of interim settlement of their trade dispute, the prospects for this
much needed de-escalation remain far from certain. It has also become
increasingly apparent that the strategic rivalry between the two superpowers is
now deeply entrenched in geopolitics and is likely to continue to shape global
trade and economic affairs for the foreseeable future.
The
direct impact of US tariffs on Johnson Electric’s business to date has been
relatively limited. Based on current sales volumes and the status of specific
tariffs in force, US tariffs are being paid on less than 2% of the Group’s
total sales. As the trade dispute has intensified, however, the indirect
effects are becoming more apparent. End-market demand in a number of industries
has weakened due to lower consumer confidence and many economists have linked
the scaling back or cancellation of new capital investments to the unstable
state of global trade relations. It is also evident that some purchasing
managers, who may initially have anticipated the trade dispute to be temporary,
are now looking to diversify their supply base and reduce their reliance on
China.
Johnson
Electric is better positioned than many global component manufacturers to cope
with these conditions. Our sources of end demand are broadly divided between
Asia, Europe and the Americas; and our manufacturing footprint already extends
to over 30 plants in 18 countries. Nonetheless, these challenges are requiring
management to give careful consideration to how we will configure our
production assets to operate in a world that is less favourable to the
interwoven global supply chains that have emerged over the past several
decades.
At
the same time as ensuring that we have a robust and adaptable manufacturing
model, the Group is focused on executing a set of strategies that will
strengthen and sustain the business through this difficult period in the
economic cycle. Firstly, we are continuing to invest in product innovations that
solve our customers’ most critical motion and electromechanical-related
problems — with a particular emphasis on solutions that help to reduce
emissions, improve energy efficiency and increase controllability. Secondly, we
are progressively increasing advanced automation in our production processes
and adopting the latest digital technology to reduce defects and improve
customer responsiveness. Thirdly, we are continuing to explore opportunities to
make selective acquisitions where we see potential to strengthen the Group’s
capabilities and improve its longer-term growth prospects.
Chairman’s Comments on the Half-Year Results and Outlook
Commenting on the results, Dr. Patrick Wang, Chairman and
Chief Executive, said, “Johnson
Electric performed satisfactorily in the six month period ended 30 September
2019 in the face of difficult macroeconomic and industry conditions”.
Dr. Wang further commented, “The
near term outlook for the global economy, especially in the manufacturing
sector, remains subdued with most observers perceiving more downside risk. In
Johnson Electric’s case, overall sales volumes have shown a modestly improved
run-rate in the past three months especially in our automotive components
division. If this trend continues, we are cautiously optimistic that sales in
the second half of the financial year will exceed that of the first half — with
the result that full year total group sales will be only slightly below that of
the prior year”.
