Ready for Takeoff

Profitable growth with a focus on new regions – this is the most important goal of SAF-HOLLAND’s “Strategy 2020”. Before catching a flight at the Frankfurt Airport, CEO Detlef Borghardt explains where the Company stands in the implementation of its strategy and the steps to come.

Mr Borghardt, where are you off to now?

Right after our meeting, I will be flying to our branch office in Beijing. As you know, we intend to boost our growth, not only within, but also outside of our core markets of Europe and North America. As CEO, this means consistently being available locally to talk to our customers and business partners. Despite today’s modern means of communication, face-to-face meetings are still the best.

CEO Detlef Borghardt meeting customers:
Face-to-face meetings count

Growth stands at the center of your “Strategy 2020”. What progress did you make in 2016?

In 2016, we were able to maintain our level of sales amid a fairly difficult market environment. We were one of the few companies in our industry to achieve this. Even the North American market, which is a very important for us, declined by more than 30%for trucks and almost 10% for trailers. We were, however, able to largely compensate for this slump with the very favorable performance in Europe. The development in a number of significant markets such as Brazil, China and Russia was also very modest. Nevertheless, in 2016, we were still able to lay the groundwork for our “Strategy 2020” in some regions – which is an important step in seizing attractive opportunities and generating future growth.

What specifically was achieved in 2016?

This question can only be answered for each region individually, since our growth target is based on a regionally differentiated strategy. Let’s start with Europe. Here we added capacity by building a new plant in Düzce, Turkey. Now, not only do we have some added flexibility to respond to order peaks in Europe, but we can now better serve emerging regional markets in Turkey, the Middle East and North Africa, where we have won some major customers. The effects of this will already become evident in 2017 in the form of additional sales. The North American market, on the other hand, will remain challenging. We are responding to this by expanding our structural growth drivers to raise our value added per vehicle, or what we refer to as “content per vehicle.”

“Now the regions have a voice, which means we can make better decisions when it comes to our strategy in the growth markets.” Detlef Borghardt, Chief Executive Officer (CEO)
How do we tap the transportation industry’s future growth markets?
CEO Detlef Borghardt talks about two strategically important investments in Brazil and Turkey.

What you mean by higher “content per vehicle”?

More and more we are delivering not only the axle but the complete overall system consisting mainly of axles, hubs and suspension system that include the brakes. Until now, most of our U.S. customers have been purchasing these components separately. However, with a system approach, customers reap significant benefits not only when it comes to assembly but also in terms of service. And, at the same time, we increase our value added per vehicle by up to 50 percent. The order from U.S. Xpress won in 2016 was a landmark order for the entire market. We will equip 1,800 trailers with an integrated axle and suspension system that includes our latest generation of disc brakes. The transition to this exceptionally high-performance brake technology is now also getting underway in the United States. In Europe today, already more than 80 percent of our axle systems are equipped with disc brakes.

What would restrictions on free trade mean for SAF-HOLLAND’s success, particularly in the United States?

Restraints in free trade would result in a drop in the share of sea transportation. If domestic production were then to rise, we would see an increase in demand for road transportation which would be positive for our business. In fact, SAF-HOLLAND itself wouldn’t feel much of an effect from trade restrictions because we have local production in our sales regions and purchase most of our key supply components in those same markets. In the United States, for example, SAF-HOLLAND is often perceived as a U.S. company. Essentially, I am not too concerned.

I understand, you can achieve quite a lot through organic growth in the core markets of Europe and the United States, but what about the rest of the world? Would acquisitions be necessary?

Well, first let’s agree that we have significantly expanded our product portfolio in several regions outside of our core markets and are now able to offer the right products in these markets. A prerequisite for doing this was to strengthen our local development teams. For example, we established our own test center in China. I am very confident that with this approach we will be able to achieve our organic growth target of EUR 1.25 billion in sales by the year 2020.

But let’s continue talking about acquisitions. SAF-HOLLAND had to accept defeat this past year with the Haldex offer.

Not at all. We prepared very well for a potential takeover and calculated precisely what we would pay for it. Our offer of 94.42 Swedish krona per Haldex share would have been a fair price. As a bidding war started to emerge, we knew right away that we were not going to join in and could better use our shareholders’ funds elsewhere and maintain financial discipline. We emerged from the situation with our heads held high. At the same time, we gained some valuable experience, polished our internal processes and now have something of a blueprint for future large M&A activities.

What is your M & A strategy?

We do not see M&A as a standalone strategy in itself. We have a strategy that can be accelerated through acquisitions when an opportunity presents itself. We use a matrix that defines the eight product lines and eight regions where we intend to actively grow. This results in a total of 64 areas. We also consider acquisitions in those areas where organic growth alone is not strong enough or fast enough for what we want to achieve. But we are not in a hurry. Acquisitions need to pay off.

Does this describe the motive behind the KLL acquisition in Brazil?

Precisely. We took an anticyclical approach when we did this acquisition. The suspension specialist KLL completes our portfolio in the South American market where the trailer business is in the process of transitioning from mechanical to air suspensions. KLL also enhances our product range in the truck and bus segments. KLL had the right products, but after years of market weakness in Brazil, it needed a strong partner. This is when we came into play and ultimately scored.

Technological expertise and increasing the value sold-in per vehicle
How SAF-HOLLAND meets the challenges of the North American market.

To facilitate this global expansion, the Company’s organization changed in early 2016 from being organized by product area to being organized by region. Has this change been beneficial?

Overall I am very satisfied. Now the regions have a voice, which means we can make better decisions when it comes to our strategy in the growth markets. For example, I travel a lot in Asia but it still makes a difference whether you are coming from abroad or have years of local hands-on experience. Our new structure has made us significantly faster, and we have been able to increase the amount and intensity of our customer contacts. At the same time our business units have overcome their silo mentality and are profiting tremendously from common structures for purchasing and engineering.

What have you learned personally since becoming responsible for the Asia-Pacific region and, with that, the important Chinese market?

I have learned that, in China, in addition to the volume segment which primarily competes on price, there is a growing premium segment for vehicle manufacturers and truckload carriers alike. Their demands are similar to ours: procuring the lightest, safest and best system. Our product range should naturally mirror the segmentation of the market. And this is where we see our strengths.

How do you keep the Company together as a global unit when it has a regional structure?

As part of our regional organization, we have purposely globalized specific functions such as purchasing. This yields synergies, some of which can already be seen in our 2016 results. Other functions such as production and quality assurance are also now operating globally. Our customer base, however, consists of hundreds of companies, most of which are regionally active. Our strength is our diversity. In engineering, this means developing numerous customer-specific applications so that we are also able to meet very individual customer requests. In that sense, we will be expanding our modular system in the future even more.

At the IAA Commercial Vehicles fair, the theme of digitization was at the top of the agenda. Is this just temporary hype?

Certainly not. Digitization will progress rapidly in the transportation sector and reach a point where there is no turning back. What this implies for SAF-HOLLAND is first that we will need to equip all of our mechanical components with linked up sensors. One example is the fifth wheel assistant for the U.S. market, which gives the driver an opto-electronic signal when the trailer is improperly coupled. In the future, digitization will mean much more. For example, when we can predict in advance when components will wear out, we will be able to optimally manage our entire aftermarket network and offer valuable added benefits from our data. And we will make a key contribution to lowering the truckload carriers’ total cost of ownership – which is really the ultimate success factor in the transportation industry.

Mr Borghardt, thank you for your time – and have a good flight!

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