Terminating the coverage of ElringKlinger

In our view, ElringKlinger has severe problems with survival in the new electric environment of the auto industry. The company delivers components that go overwhelmingly into vehicles with combustion engines and, although these are likely to be in demand for possibly more than a decade, the company’s turnover is likely to shrink in the years to come.

If you think it cannot get worse, think again

ElringKlinger’s earnings have been falling year after year since 2015. Management has blamed huge demand in different regions and the lack of production capacities for this dismal performance in the past and has done so again in Q1 19.

Costs are out of control

ElringKlinger was able to increase revenue by 2% to just below €1.70bn (+7.4% organically), but profits were again under severe pressure. Consequently, the company will not pay any dividend. These numbers were in line with our projections. However, earnings fell considerably short of our forecasts. EBIT fell by 30% to €96m and net earnings by 37% to €44m. We had anticipated respective earnings numbers of €108m and €72m.

Having arrived at the dead-end

Management had to release preliminary numbers for 2018 and an outlook for 2019 which are a disaster. While the revenue number of just below €1.70bn (+2.0% reported and +7.3% organic) was reasonable, profits again collapsed and are expected to fall further in the current year. Because of this dismal outlook, it proposes to pay no dividend at all for 2018. While management had projected a margin of 7% for 2018, the preliminary number suggests that it fell to 5.9%. In fact, it was down to 2.8% in

9M18 earnings were again very disappointing

ElringKlinger’s Q3 revenue was about unchanged at €406m, which brought the 9M number to almost €1.27bn (+1.8%). In spite of this almost reasonable number, the group’s profits collapsed. Q3 EBIT and net earnings each fell by 33% to €23m and €11m, respectively. As a result, the respective 9M numbers were €86m (-21%) and €45m (-24%). We had expected 9M EBIT and net profit numbers of €99m and €53m, respectively.

A small loss-making activity is sold

ElringKlinger has decided to sell new enerday GmbH, in which it acquired a 75% stake in 2014 and in which it controlled 80% earlier this year. This activity concentrates on the development of high-temperature fuel cells for stationary applications. ElringKlinger intends to concentrate on the development of low-temperature fuel cells for mobile applications.

Good revenue and order inflow, but everything else headed south

Like past years, management blames production bottlenecks for the poor profit performance. We wonder just how much longer investors will continue to accept this excuse, but this possibly needs some dramatic changes on the Supervisory Board.

Strong demand leads again to profit pressure

What ElringKlinger released during recent years is odd. Rising demand typically leads to higher revenue and profit numbers for most other companies, but not so in case of this company. It has had production bottlenecks in Europe in the past and it is now complaining about too strong demand in Nafta which leads to ‘consistently high follow-on costs’. In addition, management underestimated the raw material price hikes for polyamide, steel, and aluminum. As a result, it has given a new profit warn

Corporate governance problem for the CEO

The Supervisory Board’s proposal for the long-time Chairman of the Supervisory Board of NORMA Group AG, Dr Stefan Wolf, to be re-elected to the Supervisory Board for a further term of office failed to get the required majority of votes at today’s Annual General Meeting of NORMA Group SE. The voting result was 49.59% to 50.41%. Stefan Wolf is the CEO of ElringKlinger. It is unknown whether this blow is the consequence of ElringKlinger’s poor performance of recent years or the fact that one NORM

Q1 earnings just above the break-even line

Thanks to a sizeable disposal gain, ElringKlinger’s profits were about unchanged from Q1 17. However, excluding this one-off gain, the numbers were more than dismal. FX changes were one reason for this but it is our impression that the sub-optimal production logistics is another problem.

All 2017 numbers short of our expectations

Management’s excuses for rather poor profits in 2017 are: negative currency movements, unexpectedly high demand from US clients, rising input costs, and additional costs associated with the implementation of a group-wide ERP system. Management’s proposal of an unchanged dividend of €0.50 is understandable based on last year’s earnings, but it might also be an indication that earnings will not be significantly up in 2018.

Disappointing earnings in 2017 and very cautious outlook

While production bottle-necks resulted in poor profits in the past, management now blames stronger than expected North American demand for poor 2017 earnings. It sees this profit pressure continuing in 2018.

Acquisition in 2011 is sold to Faurecia

Disposal of Hug Engineering is likely to lead to a disposal loss which is to be booked into the 2017 accounts.

ElringKlinger goes electric

The German car components producer and Chinese Chengfei Integration Technology (CITC), a subsidiary of state-owned Aviation Industry Corporation, have set up a joint-venture to develop, produce, and distribute lithium-ion battery modules for e-mobility projects in Asia, Europe, and the USA.

9M17 numbers again short of our expectations

Consolidated sales increased by 8.2% to €1.24bn whereas EBIT was up by 11% to €108m and net earnings reached slightly less than €60m, an increase of 1.3%. Our respective projections were €1.25bn, €110m, and €66m.

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Morning Note – 4 April 2024