What Is Going on with Bertrandt?

/ March 18, 2018/ Automotive, Bertrandt, Financials, Germany

We took a look at the performance of well-respected German automotive ER&D specialist Betrandt, which recently released its Q1 FY18 results (corresponding to Q4 2017).

Revenues were up by 1.2%. Bertrandt does not report CC growth: we are assuming the impact of forex was limited given  (Bertrandt derives 86% of revenues domestically). The +1.2% growth show growth acceleration compared to FY17 (+0.2% over the full year), especially when taking into account the impact of two lesser working days during the quarter.

German automotive OEMS have been very healthy for years. Yet, the automotive ER&D market conditions continue to be difficult even for reputed vendors such as Bertrandt and EDAG, largely because of the AUG legislation, and also of VW’s dieselgate.

It happens that VW is the largest shareholder of Bertrandt and its largest client: in Q1 FY18, VW revenues were up slightly (+1.0% in Q1 FY18) after a sharp decline in FY17 (-15%). Looking ahead, it is difficult to predict how the VW relationship will evolve: VW has indicated it want to reduce its R&D spending, from 7.3% of revenues in 2016 to 6.0% in 2020. Of course, there is not a direct link between R&D spending and ER&D spending, yet we know that from history that declining in R&D budgets lead to declining spending in ER&D in the short-term.

Outside of VW, revenues were up 1.3% during the quarter. Interestingly, growth is similar across service line, including mechanical engineering, embedded systems, and new tech. In all likelihood, Bertandt is feeling the pain of the AUG legislation.

How does the future lies for Bertrandt?

The effects of AUG are showing in the volume of business with other clients, we think, and also across servic elines . Non-VW Bottom line the difficulties of Bertrandt are largely spread due to market conditions. In a recent investor day, Bertrandt seemed optimistic in existing its revenue plateau-ing soon. And indeed, autonomous and electric vehicle programs are driving ER&D spending.

The market is changing though: competitors such Akka and Alten are mentioning that Germany is gradually adopting work packages, away from staff augmentation, and awarding larger contracts to a smaller number of ER&D vendors. Also, the offshore word is gradually becoming more common: EDAG wants to develop its offshore presence, and Altran mentioned it was seeing appetite in the German automotive industry for offshore delivery and has signed at least one significant deal.

How will Bertrandt fare in these new market conditions? We do not know yet. To be followed.

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