Joep van Beurden, Kendrion CEO:
"As trade tensions and their broader impact on consumer confidence persisted, our markets continued to be weak. In Automotive, global vehicle production was 89 million in 2019, 6% lower than in 2018, and the German Manufacturing Purchase Managers Index (PMI) hit a 10-year low in September 2019. This affected our 2019 revenue, which at EUR 412.4 million came in 8% lower than in 2018.
The revenue decline has put our results under pressure, and in response we have continued to streamline our organisation. As previously announced, we have realised further efficiency improvements of EUR 5.0 million on a yearly basis as of the start of 2020. We have also reduced our working capital, limited investments only to those projects driving future growth and generated a record normalised free cash flow of EUR 25.5 million.
Despite the difficult trading environment, we continue to invest in our focus areas of Automotive, Industrial Brakes and China, as we firmly believe in the longer-term prospects of our business. In Automotive, we added EUR 320 million of lifetime revenues to our order book on top of the EUR 340 million we added in 2018. Our healthy project pipeline is a strong leading indicator of future growth. In China, several projects in our pipeline started mass production in 2019, leading to year-on-year revenue growth of 29%.
In Industrial Brakes the acquisition of INTORQ GmbH & Co. KG, a global market leader in spring-applied brakes was completed on 8 January 2020. With this acquisition Kendrion now offers a complete product offering of permanent magnet brakes and spring-applied brakes to customers in Europe, the USA, China and India. The acquisition changes the nature of the Kendrion Group. We now have approximately 55% of our revenues in Automotive, and 45% in Industrial segments. About 80% of our revenue is in segments in which we invest for organic growth, and 20% in markets more focused on cash generation. We have started the integration of INTORQ and expect to present a strategic and financial update of the enlarged Kendrion organisation on 18 August 2020 as we announce our first-half 2020 results. This will include updated medium-term financial targets, fully reflecting the INTORQ acquisition.
Looking ahead, we see our markets stabilising albeit at a lower level than in early 2019. The effects of the COVID-19 corona virus on our business are limited to date. However, the impact on the global economy is uncertain and has the potential to be severe.
We are confident in our ability to grow both our revenue and profitability in a sustainable way, with our simplified, leaner organisation, our improved balance between Automotive and Industrial, our pipeline momentum, strong financial position and underlying business fundamentals."
Progress on strategy
Kendrion has built a robust and lean organisation with a strong financial position, maintaining a focus on operational effectiveness and cost levels. In the fourth quarter, additional savings in indirect staff costs were realised, yielding about EUR 5.0 million per year as of January 2020. We have identified a further EUR 0.5 million in savings, to be implemented in the first half of 2020. Total corresponding one-off costs are expected to be EUR 3.5 million, of which EUR 2.9 million were recorded in 2019. This brings the total annualised savings since the start of our simplification programme in 2016 to about EUR 25 million.
We continue to invest in our three focus areas: Automotive, Industrial Brakes and China, and we took significant steps forward in each.
In Automotive, we made progress with our five "Lighthouse" platforms. These platforms include highly innovative new automotive actuators, designed to help enable Autonomous, Connected, Electric and Shared mobility (ACES). On the back of these innovations and other products, we added EUR 320 million (2018: EUR 340 million) in nominations to our Automotive order book, which is a book-to-bill ratio of 1.25 (2018: 1.2). Of these nominations, 65% is independent of combustion engines.
- The quarterly results are not audited -
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In Industrial Brakes, our recent acquisition of INTORQ was completed on 8 January 2020. We expect the acquisition to strengthen our position in this important growth market in Europe, the USA, China and India. The integration process has started and is going according to plan. As of 1 April 2020, INTORQ and Industrial Drive Systems will be combined into one "Industrial Brakes" business unit.
As of 1 January 2020, we have merged Industrial Magnetic Systems (IMS) and Industrial Control Systems (ICS) into one combined business unit named Industrial Actuators and Controls (IAC). As a result, the Kendrion Group will be organised into three business units: The Automotive Group (AG), Industrial Brakes (IB) and Industrial Actuators and Controls (IAC).
In China, where all our business units are active, our performance was strong. Our revenue grew by 29% year-over-year, despite headwinds in the Chinese economy. Based on our pipeline we expect organic growth to be somewhat lower in 2020, with continued strong growth as from 2021 when two large new automotive projects will start production. We continue to invest in production lines, our local supply chain and workforce to build and train our Chinese team to accommodate this growth.
With INTORQ now part of the Kendrion Group, our revenue mix has changed. The Automotive Group represents about 55% of Group revenue, Industrial Brakes around 25% and Industrial Actuators and Controls around 20%. AG and IB focus on organic growth, IAC on profitability and cash generation.