Frankfurt am Main / Dornbirn – The management of the Zumtobel Group has set itself the goal of doubling the profitability of the international lighting group within the next three years. Thus, the operational return on sales (adjusted EBIT margin) is to be increased from its current level of approx. 4%* to around 8 to 10% in the medium term. In this context, the company is relying on moderate sales growth as well as significant cost savings, with the key measures being introduced in the coming financial year (May 2014 to April 2015):
“For us, the 2014/15 financial year is going to be marked above all by a structural improvement of our results. Based on our new organisational structure, we have identified specific restructuring measures in Sales and in terms of plant organisation that we are now going to implement quickly. In this way, we are going to leverage the synergy effects from the multi-brand approach that have lain dormant in the company for over a decade. In the coming financial year, however, we are also going to invest in the targeted expansion of our product portfolio, the sharpening of our brand profiles, the training of our employees, and in our market presence, especially in Asia and the Middle East,” said Zumtobel Group CEO Ulrich Schumacher, describing his agenda for the coming year.
Construction sector activity and technology shift will help drive moderate revenue growth
According to the latest Euroconstruct data, there are signs of a turnaround from a declining market environment in the European construction sector towards moderate growth. In the lighting industry, this trend is being reinforced by the technology shift to LEDs, the topic of energy efficiency and growth opportunities in the new markets. Against this backdrop, the Management Board of Zumtobel AG expects annual organic revenue growth of between 3 and 5% over the next three years. This growth includes market share gains in both established and emerged markets and the new ones.
Significant cost savings in sales administration and sales infrastructure
One major focus in 2014/15 will be the consolidation of the two formerly separate sales organisations of Zumtobel and Thorn. In all seven sales regions, sales activities will be structured transparently in line with four distribution channels: project business, end customers, wholesalers and outdoor public lighting. Significant cost savings will be achieved by merging administrative functions, consolidating infrastructure such as showrooms and offices, and introducing leaner management structures. On the cost side, the aim is to reduce selling, general and administrative expenditures (SG&A) across the Group from the current level of approx. 29% of revenues by two to three percentage points by 2016/17. The new sales organisation is additionally characterised by greater customer proximity and more entrepreneurship in the various regions, as well as by coordinated, widespread marketing of the product portfolios of both luminaire brands.
Efficient plant organisation: worldwide production network with improved capacity utilisation
In terms of plant organisation, the former Zumtobel and Thorn plants will be merged into a single global production network in 2014/15. In the process, the plants will be organised in such a way that they can exploit their regional and technological strengths to optimum effect for the benefit of the entire Group. Within the network, there will be increased cooperation and more product relocations – to Asia in particular. To improve capacity utilisation and cut costs, projects have been defined for the Group’s 18 plants targeting the marked downsizing, shutdown or sale of the respective location. Four to six locations will ultimately be affected by this initiative. These projects will now be developed in detail and initiated during the first quarter of 2014/15 at the latest. Apart from further efficiency and quality improvements, significant cost savings will be achieved through a Group-wide Purchasing function. Overall, the aim is for production costs which currently stand at 61.5% of revenues to be cut by three to four percentage points by 2016/17.
The above measures will lead to additional restructuring expenditures in the fourth quarter of the current financial year in the amount of approx. EUR 15 - 20 million. For 2014/15, the managing board expects restructuring costs in about the same amount. Through these measures, the headcount in Sales will be reduced by some 150 employees and in the plants by up to 450 employees.
Continuing investment in research & development
The Zumtobel Group is going to step up its investment in research and development over the next few years, with a focus on LED efficiency and LED optics, the architecture of future lighting systems, sensor technology and controls. The intra-group standardisation of components and the development of platform concepts will enable synergies to be leveraged, complexity reduced and development cycles shortened. Overall, at 5.5 to 6% of revenues, R&D costs will slightly exceed the current level in the coming years, in particular on account of higher expenditures in the field of software development.
“I see enormous potential in the Zumtobel Group, with its strong brands Thorn, Tridonic and Zumtobel, to develop into an international innovation and market leader in the lighting sector. 2014/15 is going to be the year in which we put down sound foundations for profitable growth. Building on this, the important thing will be to create efficient business processes and develop the potential of our highly qualified staff, joining with them to develop entirely new business models,” says Ulrich Schumacher looking ahead.
Outlook: Earnings targets for the new financial year and mid-term goals
Based on significant cost savings and moderate sales growth, the Management Board of Zumtobel AG expects the adjusted EBIT margin to improve to between 5 and 6% for the 2014/15 financial year, with a further medium-term increase to between 8% and 10% by 2016/17.
* Current consensus of analysts for the adjusted EBIT margin in the 2013/14 financial year