VBG Group interim report describes an extreme quarter for the Group characterized by the COVID-19 pandemic.
Second quarter of 2020
• Consolidated sales decreased by 31.6% to SEK 670.1 M (979.4).
• Operating profit declined to SEK 38.2 M (123.3).
• Operating margin decreased to 5.7% (12.6).
• Profit after financial items declined to SEK 32.6 M (109.6).
First half of 2020
• Consolidated sales decreased by 17.3% to SEK 1,627.6 M (1,969.0).
• Operating profit declined to SEK 154.1 M (258.8).
• Operating margin decreased to 9.5% (13.1).
• Profit after financial items declined to SEK 146.1 M (231.3).
Comment from VBG Group´s President & CEO, Anders Birgersson:
An extreme quarter for the Group
The second quarter of 2020 was the most special quarter ever in my career. When the COVID-19 pandemic spread with full force and country after country took drastic measures, large parts of the world were paralyzed. VBG Group’s operations were affected at every level when countries closed their borders, shut down schools and imposed curfews. We had already begun taking action in VBG Group in the first quarter to protect our employees and our business during the pandemic. During the second quarter, we are pleased to state that throughout the entire Group we have had only a few cases of infection, from which the staff have now recovered, and we have also in total had a somewhat lower rate of sick leave than normal. Owing to our early investments in IT infrastructure, we were able to offer those members of staff who had the possibility the option of working from home and replacing travel with digital meetings in a highly efficient manner. Our staff has shown a great deal of understanding and displayed a high level of commitment to lending a hand and helping us through this crisis.
Moreover, I am pleased with how we managed to meet the severe drop in demand that arose during the quarter. We rapidly introduced a number of measures and had plants under partial shutdown in several countries during the second quarter; we put our staff on temporary furlough where possible, and sought and received local support in the countries where it was available. During the second quarter, we received support from government agencies corresponding to just over SEK 34 M. In parallel with this, we have reduced our costs in an insightful manner by adapting our operations in various ways to the current conditions. In the second quarter results, we can also see that our stock levels are normal, which I consider to be clear proof that the Group efficiently managed rapidly floundering demand. I feel that, through the measures introduced and owing to the support we were able to get, we returned good results for the quarter.
Despite the current global situation, VBG Group has not experienced any major disruptions in our deliveries; it was above all our customers’ supply chains and government decisions that impacted our business. We can also state that during the second quarter, our operations in Brazil were, at most, marginally affected by the pandemic, and in China as well our operations in the second quarter were more or less running as normal after the shutdown in the first quarter. A look at our three divisions shows that the crisis affected our operations in different ways.
Truck & Trailer Equipment had stable, healthy profitability going into the crisis and, despite a nearly 40% decrease in demand, managed to retain a strong level of profitability owing to early measures such as temporary furloughs and changes to the operations. With its broad customer base, Ringfeder Power Transmission did not take as large a hit to demand as the other divisions. The division has healthy margins in certain segments and demand for its business remained strong during the quarter, leading to the highest profitability in the Group for the quarter. Even during the financial crisis of 2009, it was clear that Ringfeder Power Transmission’s broad customer base was a source of strength in uncertain times, and this was confirmed once again in the second quarter.
As regards Mobile Climate Control, the division’s robust growth over the last few years came at the cost of lower margins. This means the division has difficulties maintaining profitability when demand decreases drastically. For Mobile Climate Control, the aftermarket business was also heavily affected compared to the other divisions. The main reason for this is that many cities sharply reduced their public transportation services during the current pandemic. In the second quarter, we began a strategic and structural review of Mobile Climate Control’s operations. Initially, we had decided to phase out Mobile Climate Control’s Brazil operations in the third quarter. VBG Group is established in Brazil through its other divisions, so the Group will retain its presence in the Brazilian market.
It is highly uncertain how 2020 will continue to develop. Within the Group, we are now working intensely on reviewing all aspects in order to be prepared for various scenarios going forward. We will need to work on short-term activities, as well as on our future strategy over the long term. We will continue our efforts in digitizing our operations, and in the second quarter we also updated our sustainability agenda to link our operations more clearly to the UN’s Sustainable Development Goals.
The uncertain development of our markets over the coming quarter, as well as of future state support and subsidies, makes it difficult to predict how the next quarter will develop. Increased revenue from third-quarter sales will not naturally lead to better earnings than the second quarter, if state support is not forthcoming.
In conclusion, I can state that a global pandemic is nothing a company can ever fully prepare for. I feel we have acted in a highly professional manner, using our experiences from previous economic crises. I would like to thank all our employees, who have acted conscientiously and prudently, and really stood up for the Group. Everything indicates we will be living with COVID-19 for some time yet, and it is important that we do everything to continue to take care of each other and our company.