EDAG issues a profit warning

/ July 30, 2019/ Automotive, EDAG, Financials, Germany

EDAG issued last night a profit warning for its full-year 2019 operations. The company is now expecting revenue growth by approximately 1% (previous guidance 5%), an adjusted EBIT margin of 4%-5% (previously 5%-7%), and a net profit of EUR 10m.

EDAG continues to suffer in its Production Solutions (PS) unit, which is impacted by automotive OEMs delaying their manufacturing plant investments. Utilization rate is down, driving the P&L in negative territory. The company has decided to restructure PS for a cost of EUR 8m.

Outside of PS, other units Vehicle Engineering and Electrics/Electronics are doing according to plan.

The profit warning signals a deterioration in the automotive market. Previously, EDAG was expecting a rebound in investment in manufacturing engineering, driven by China and bundled car and powertrain manufacturing along with digital manufacturing. The company had invested EUR 3m in refreshing its capabilities. With the EUR 8m restructuring, EDAG is now going the opposite direction and acknowledging the decline in the market.

This is unfortunate timing for EDAG. The company is progressing well on its internationalization strategy (39% of revenues in 2018) to reduce its dependency on the German automotive market. Its largest unit, Vehicle Engineering is back to growth, and E/E, its “digital unit” is also back to high growth, although still suffering from a lack of client diversification.

EDAG also simplified the way it markets its digital capabilities, by bundling them under the BFFT Electronics brand, grouping 1.5k employees, bringing more visibility on its AV, connectivity and mobility service capabilities.

EDAG also provided its preliminary H1 2019 results: revenues were down 1% (our estimate) to EUR 390m, its adjusted EBIT margin was 4.3%, and its net profit EUR 5m. In short, EDAG is expecting in H2 2019, a revenue growth acceleration to we estimate +2%, and a similar profitability level.

We think the priority of EDAG, given that the automotive is still operating close to its peak of activity is to develop outside of the automotive industry and de-risk its profile, especially in PS.

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