© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome to the analyst conference of EDAG AG regarding the presentation of the quarter 1 2019 results. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Mr. Cosimo De Carlo, CEO, who will lead you through this conference. Sir, please go ahead.
Many thanks. Good morning, ladies and gentlemen, and welcome to our Q1 earnings call. I'm here together with my colleagues, Jürgen Vogt and Holger Merz. Jürgen will give you the financial details on the first quarter and Holger will introduce himself later on.As usual, let me give you an update on our market environment and the key highlights of our Q1. Looking at our market environment, we do not see any significant changes since our last call from April 3 this year. The global automotive R&D spending remains at very high level, which brings further opportunities for ESP to grow. Due to the extreme technological shift towards eMobility, highly automated and autonomous driving, new mobility solutions and Industry 4.0, our customers are facing numerous challenges. In this phase of the market, hence, are optimizing their product portfolios and their R&D outsourcing strategy. Some of our customers have announced additional savings programs. This has led to some project delays during the first quarter especially in the Production Solutions segment. Our strategy in this phase of the market is to further push towards new technologies and to support our customers with our competence in all areas of future mobility. Looking at our Q1 numbers. We have managed to remain on the growth path and to significantly accelerate the speed in our Electrics/Electronics segment. Overall, revenue growth in Q1 was up 2.2% with Electrics/Electronics outperforming with a growth rate of almost 18%. Vehicle Engineering shows robust growth of 4.5%. As already explained during our last call, this year will be extraordinarily challenging for our Production Solutions segment. As OEMs are facing overcapacities in the global automotive production facilities, some of our customers stopped projects for the redesign of existing plants and for the engineering of new plants. Some projects have also been in-sourced during Q1. After this extraordinary high growth in 2018, Production Solutions is posting a revenue decline of 22% in Q1.As also the margin has suffered, we have decided to roll out a restructuring program for the Production Solutions segment. This program will consist of closing of smaller subsidiaries in Germany; reduction of workforce in mechanical engineering; and the increase of workforce in technological advanced areas such as the Smart Factory automation, mechatronics engineering and virtual reality factory configuration. The program will cost about EUR 3 million, which will be fully adjusted in Q2.Additionally, we have started sales initiatives in order to increase the order intake. Depending on the further development of the market, additional measures will be taken in the second half of 2019. We are convinced that we can realign the Production Solutions segment with these measures and return to a profitable growth at the latest in 2020.We expect a high need for the optimization of global automotive production plants in order to be more flexible in the production of different drivetrains and cars on the same production line. With the recovery, especially of the Chinese market, we expect OEMs to restart the investment into new production technologies. We will do everything to realign the PS segment accordingly and to be able to benefit from this development.Ladies and gentlemen, looking at our performance, I would like to emphasize that 80% of our business, mainly Vehicle Engineering and Electrics/Electronics, are healthy especially Electrics/Electronics is now showing the expected growth rate and margin development, thanks to our initiatives during the last month. As we have fixed the issues in our Electrics/Electronics segments, I'm convinced that we also fix our PS segment with the measures described before. Overall, we are optimistic that EDAG is very well placed in the ESP market and that we can benefit from the future development needs of our customers. We have further increased the number of staff outside Germany to optimize our cost structure and to serve our customers globally. At March 31, we have employed 8,681 people.Ladies and gentlemen, looking ahead, we'll have our Annual General Meeting in Zürich on June 5. The invitations will be sent to you in due course. The AGM will decide on the payment of a dividend of EUR 0.75 per share. Moreover, as already announced, we will have a change in management after the AGM. So today will be the last earning call of our CFO, Jürgen Vogt. He has been with you since the IPO of EDAG. After the AGM, our COO, Holger Merz will take over the CFO position from Jürgen. I would like to take the opportunity to warmly thank Jürgen for his fantastic performance during the last 20 years as CFO of EDAG and for the great support he has given to me during the last 12 months. Holger Merz is also with us for almost 20 years now. He's not only a financial and tax expert, but also a true insider of the company. So I'm delighted to welcome Holger in this call, and I would like to hand over to him for a short introduction.
Thank you, Cosimo, and also a warm welcome from my side, ladies and gentlemen. My name is Holger Merz, and I'm 43 years old. I started my career at EDAG in February 2000 and was Head of Group Accounting and Tax until the end of last year. Since January 1 this year, I'm COO of the company. And now I'm looking forward to take over the CFO position after this year's Annual General Meeting.As Cosimo has already carried out, my main task at the beginning will be to drive the restructuring for our PS segment to further optimize our cost structure in growth sectors. Moreover, I will support the implementation of the goals of our strategic REinvent program. As my predecessor, Jürgen Vogt, will accompany these processes until the end of the year, I'm absolutely convinced that we will have a smooth transition period.As I will be attending several conferences and roadshows over the next few months, I look forward to meeting you all in person. In the meantime, should you have any questions, please feel free to contact either me directly or our Investor Relations department at any time.So far from my side for the moment. Please let me now pass on to Jürgen Vogt who will provide you the financial details on our first quarter 2019.
Okay. Thank you, Holger, and good morning, ladies and gentlemen. Before I go into the details of our first quarter, let me quickly comment on the transition of the CFO position.I've been working many years with Holger Merz. He helped me with all important financial issues in the past. For example, get the company ready for the IPO in 2015 and successfully integrate the Rücker acquisition. I think he is the ideal candidate for the CFO position. He knows EDAG from the inside even much better than I do, and he is familiar with all of our financial issues. Some of you already had the chance to meet Holger at our roadshows. Again, I'm convinced he is the right choice for that job.The board has asked me to stay on after the AGM on a consulting basis through the end of this year to help with the transition. Starting next month, we will have streamlined the organization. The group executive management will consist of 2 people, Cosimo De Carlo and Holger Merz. This combination of an external market expert and an internal financial specialist is, from my point of view, the ideal setup to drive the company forward. So ladies and gentlemen, let us now get into the financial details of our first quarter. Total revenues in the first month were up 2.2% to about EUR 198 million. Vehicle Engineering had a good growth rate of 4.5%. Electrics/Electronics is outperforming with close to 18% revenue increase. Product Solutions, on the other hand, shows a sharp decline.Margin. The adjusted EBIT margin for the whole company in total was 5.6% of sales. Again, Vehicle Engineering had a solid margin of 6.4%. Electrics/Electronics, a satisfactory 9.3%, very satisfactory 9.3%. The great performance of our Electrics/Electronics was, however, not enough to offset the negative impact of the Production Solutions segment.Looking at the order intake. We are quite happy with the overall development in the first quarter and an increase of 12.5% over last year's figure to EUR 288 million. The order book is still somewhat behind last year's as the carryover from 2018 was not as high as in the previous year. In order to achieve our growth target for this year, we will need to win additionally 1 or either 2 bigger international contracts. As we are in advanced negotiation with several potential customers, we are optimistic to reach that growth.Head count was up by roughly 300 people to 8,681 employees. With our continued growth, we expect head count to increase slightly over the year especially outside of Germany.Total equity is up to EUR 147 million. The equity ratio decreased to 23.1%. In these figures, you can see one of the effects of the new accounting rules and standards, IFRS 16. The balance sheet grew by more than EUR 150 million compared to last year's. We had to book our office leasing contracts as assets, which is why we now have a lower equity ratio.Looking at the cash flows, we see a decrease in the operating and the free cash flow, which is mainly due to a higher effect in capital tied up in the trade working capital compared with the previous year period.Now let us look at our cost structure and the breakdown. We have managed to reduce our personnel expenses to a lower level compared to last year's. In combination to the external services, the share has decreased from 74% last year to 72.4%. I do not think that we can maintain this favorable ratio for the complete year as we had some positive onetime effects in the first quarter.The short material expense went up by 3.9% to 6.9% from 6.9% to -- from 3.9% to 6.9%. This is due to a major contract for refulfilling a small series of vehicles with fuel cells in this project. We are buying new cars from our customer, integrate the fuel cell drivetrain, and sell the retrofitted car back to our customer.Now let's come to the net financial debt. The net financial debt at March 31 went down by EUR 13 million to EUR 236 million. The leverage was at 2.6x adjusted EBITDA, same as last year. Here also on this chart, you can see the impact of the new accounting IFRS 16. The financial debt went up significantly due to the leasing liabilities that we took on the balance sheet. Just as a reminder, at the end -- year-end 2018, our reported net financial debt was around EUR 80 million, old accounting rules, and the leverage was at 1.2x adjusted EBITDA.The new figures do not look as pretty as before. They have changed only to the new accounting standard and have nothing to do with our performance. We made sure in advance that our lenders were prepared for these changes.Now let us look at the outlook. As Cosimo De Carlo carried out at the beginning, our overall market for engineering services has further opportunities to grow in the current phase with signs of a global economic cooling down. And the technological change in the automotive industry, we had some delays in the awarding of projects. We consider this to be a short-term effect. Mid-term, we do see our market as fully intact with a project with CAGR of 4.6% until 2022. Our goal is to grow faster than this.As the very positive development in Electrics/Electronics did not fully compensate the development of Production Solutions, we have decided to carefully guide for the lower end of the EBIT margin corridor.For the full year 2019, we expect revenues to grow by up to 5% and adjusted EBIT margin at the lower end of our range of 5% to 7%.Ladies and gentlemen, thank you for listening to our report and our Q1 figures. We are now looking forward to answering your questions.
[Operator Instructions] Laskawi from Deutsche Bank.
The first one will be on customer mix, more or less. Could you comment on VW brand and also all the revenues? I know that you don't want to give detailed figures, but just have we seen the bottom for both? I think you commented that the VW brand was more positive recently already and Audi was still challenging. And as a second question on the E/E division, is that really a broad-based uptick? Or is it a very specific customer coming back and outsourcing? And could you comment also on pricing? I would guess it's more favorable now. And you've already leveraged it, as a third question on free cash flow, but there was a working capital outflow. Is there anything specific that we would need to know? Is it more customers holding back or only 1 big project, which is facing delays? If you could comment on that?
So I will -- the answer concerning the customers, let's say, if I will look at the global figures of Q1, we see a very good development of our sales with the German customers in general. So you only -- specific interest into Volkswagen, Audi, I will say it's an overall good outlook for the German customers, and the main increase that we had with those customers is mainly in the Electrics/Electronics area. So as we started some months ago beginning, let's say, with -- to implement the measures for differentiating Electrics/Electronics to have a very good portfolio that our customers can understand, this is exactly the confluent of things. So we are growing with the German customers -- all the German customers especially in the Electrics/Electronics area because we are now expanding our portfolio and expanding also the kind of services that we do, not only with our customers, but all the customers.Concerning the E/E is -- again, it's not a particular factor for end customers. If you haven't look at these figures, the growth of E/E entails the growth for all the main customers. So it's -- we are in line. There is no, let's say, special effect depending on 1 country with 1 customers. Our strategy is to grow in a, let's say, solid way in the Electrics/Electronics in all the customers of our portfolio.
As far as the working capital is concerned, we are somewhat in the similar situation at last year. At the end -- before the end of the year, there are some international customers, which are a little bit back on the payments. We are discussing with them. And as at the end of last year where all the money came in, we think we should also be able to manage this with these customers.
Excellent. And Mr. Vogt, obviously, as this is your last call with the markets, all the best for the future, and thank you.
Well, thank you very much.
Our next question comes from Marc Tonn from Warburg.
First of all, regarding EU, I've seen this is very positive performance in the first quarter. From your perspective and visibility you have for the business, are these growth rates something we should also assume for the next quarters? Or is there -- let's say, it's too early to say and momentum may ease a bit from the level of where we are at right now. That would be the first question. Second question, looking at Production Solutions and the revenue now, let's say, around EUR 30 million in the first quarter and the restructuring you are now undertaking. Will that restructuring be sufficient if revenue stabilize at EUR 30 million? Would you just have to, let's say, do add-ons if decline is harsher than that? Or do you have, let's say, included any expectation of the first -- the improving situation for the second half?
Okay. So concerning the EU performance, I think we started a very good trend starting from third quarter, fourth quarter of last year's. As I always mentioned, we started different initiatives internally to, let's say, optimize our portfolio. As we always mentioned, we are now in the final phase of the integration of the ESP and -- in that Electrics/Electronics. That was very, very welcomed from our customers. So it's a result of a better internal organization plus sales initiatives, of course. Outside the classical offices where we were, let's say, before. So I'm expecting that Electrics/Electronics will maintain a very good growth over the year. As always stated last year, let's say, we want E/E to grow over proportional, this proportional compared to the other sectors. So for this reason, we are exactly on track, and we do believe that this trend will continue always also in the upcoming months except for some surprise that will come. But as I said from a customer point of view, let's say, we are growing everywhere. So there is no, let's say, lucky effect from any customers. In terms of Production Solutions, the restructuring program I mentioned before. For me, restructuring program is always a combination between sales initiatives and the cost measures. So of course, we have to undertake cost measures especially in the mechanical engineering part, which is now suffering and which is, let's say, I will not say all pressure on business, but it will take something legacy and we want to adapt to the Production Solutions faster more to the new kind of business, which is linked to the automation to the mechatronic business. But in parallel, it's not only a matter of costs. Of course, we think that we have a very interesting portfolio for our customers. So these cost measures are always accompanied by sales initiatives that we are running actually since many months. You see also the trend in the revenue growth in all these sectors. So we are pushing a lot our sales, and the Production Solutions is exactly as part of the group inside these sales initiatives.
I think we are sufficient with this -- with the amount of money we will be releasing so far in the second quarter of this year. We have to see how successful our sales initiative is. If there is additional measures necessary at this point of time, we think we are good with the amount we have released so far.
If I understand you right, so with the margin on doing and the integration initiative you're taking, let's say, will be in the mid-30s in terms of revenues in the quarter, which is based on Production Solutions, should at least be back in profitable territory. Is this the right way to understand it?
We want to -- of course, we want to be, as soon as possible, in a profitable territory in the best solutions, of course. It's a mix of both, let's say. So cost and sales initiatives at the moment the market is, as I said in the beginning, is suffering especially in these areas because less cars are sold, less investment in production is a typical reaction of the market when we look at the situation of our customers. Nevertheless, internationally, we have interesting meetings with potential customers. And of course, we need to do our homework in terms of cost structure of the company. This is exactly what we have -- we want to do now with this restructuring program of EUR 3 million.
Okay. Mr. Vogt, all the best to you for the future. Thank you very much for your support in the last years. Thank you.
Thank you to you, too. It's been a pleasure working with you.
[Operator Instructions] Our next question comes from Mr. Glowa from Hauck & Aufhäuser.
Can you please comment on the order intake, which was nicely up 12%, I think, in Q1? I assume this is basically referring to E/E. And can you talk about the pricing here for these new projects, please? Is that going to improve looking forward?
Okay. So order intake comment is, let's say, the mainly increase of order intake was mainly in Vehicle Engineering, also in the Electrics/Electronics. So we have a fantastic increase of 32% on the Vehicle Engineering side. Electrics/Electronics 2%, but Electrics/Electronics is more a short-term business. We're not expecting, let's say, here a high increase in Electrics/Electronics. In terms of prices -- pricing, you always know my point of view are not always expecting prices increasing or decreases. What is important for me is the kind of responsibility, the kind of business, let's say, we take over. We are much more selective in the -- in our business choice. And all the projects, let's say, all the order intake, we have reached in Q1, give us a certain confidence about the profitability. So the price pressure remains on the market. It's -- I will lie if I also say there is no price pressure. Nevertheless, last year, we started many initiatives on the project management side. So we're confident that with our project managed initiatives, we'll be able to run those projects in a very -- in a profitable way.
All right. And then just one quick follow-up on the margin in Q1 in E/E which was nicely up about 8%. Is that because basically better pricing, better utilization as any one-off, which we should consider?
I would say like this, we have a very good -- it's always a combination. We have a very good utilization in the Electrics/Electronics. We have also won very interesting project from a technological point of view. So it's also a matter of task we do perform with our customers, and that's the result of both those experts, nevertheless. Of course, the pricing in Electrics/Electronics are better than in other segments. Of course, this is one of the reason why we pushed a lot in the last month on the Electrics/Electronics, but it's also a matter of utilization of our people and the ability to manage our competences in the right way so that we could, let's say, perform or we could carry over very interesting projects for many customers, also if -- mainly in Germany, I would say.
[Operator Instructions] We have no further questions. Dear speakers, back to you for the conclusion.
Yes. So many thanks, everybody, for participating to our call. As I said at the beginning, once again, also I would like to thank -- warmly thank Jürgen for the fantastic support that he has done to me in the last 12 months. And of course, just for the fantastic performance as the CFO of the company in the last 20 years. It was really a very good pleasure for me to work close to him in the last 30 months. And I really would like to stress -- or say a couple words again. I'm very happy and delighted that Holger Merz will accompany me in the next months and years in this fantastic challenges through the company. Again, I'm very -- I'm convinced, like Jürgen said before, that Holger is the right partner for me. We are the ideal combination to push the company in the champion's league as well. So thank you very much to everybody, and thank you, of course, to Jürgen and to Holger.
This concludes today's conference call. Thank you for your participation. You may now disconnect.