EDAG Declined by 33% in Q2 2020
Traditional Business Suffered While Digital Was Stable
We were expecting EDAG would have a difficult Q2, as the company is very European and services mostly the automotive sector. However, we had not anticipated a decline of this scale: revenues were down by 32.6% in Q2. Unsurprisingly, the EBIT margin was significantly in negative territory (-14.4%).
In detail, Vehicle Engineering (VE), the traditional ER&D unit, was down by 32.6%. VE suffered from the cancellation of three significant contracts, along with the shutdown of several client facilities.
Production Solutions was down by 21.7%, as clients put on hold their manufacturing refresh projects, despite some plant maintenance activity.
Finally, E/E, the digital unit, showed its resiliency with a decline limited to -5.1%.
EDAG Continues to Shift its Portfolio
EDAG continues to push its diversification and opened new accounts, targeting start-ups. The company won several new logos, e.g., Evergrande, in China, TOGG in Turkey, and Nikola in the US.
Also, EDAG continues its digital push. One year ago, the company amalgamated its digital units (BFFT Gesellschaft für Fahrzeugtechnik) into one (EDAG Engineering) in Wiesbaden. EDAG is now centralizing its operations (Gaimersheim and Eitensheim) close to Ingolstadt and expanding its capabilities from production plant development, testing, and storage to software and digital. The site has a capacity of 850 positions. The digital push continues. We are guessing the site services mostly Audi.
In parallel, the company is limiting its investments (with a Capex of 2.2% in H1). EDAG is also accelerating its restructuring and expects to spend up to EUR 12m in restructuring costs. It will close small sites, reduce its workforce, and rationalize procurement.
This restructuring action flags a change in the strategy of EDAG, which initially wanted to hold on to its employees, and keep its expertise. In the past crisis in 2008-2009, EDAG had suffered from late lay-offs, which had hampered its recovery. Currently, EDAG only targets specific roles in body engineering and modeling, in VE.
EDAG Expecting for the Worst
The short-term future looks uncertain to EDAG. The company is the only firm we are aware of, to expect automotive engineering to be back to where it was at the end of 2019, between 2022 and 2025. Mostly competitors are getting ready for a rebound in H2 2021. Is EDAG being more conservative than peers, or is it because of its profile? We will inquiry when Alten announces its H1 results in late September.