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ElringKlinger's preliminary quarterly results point to sustained growth without advancement in earnings
Revenue for Q2 2016 up 2.9% at EUR 390.9 million
EBIT before purchase price allocation down by EUR 3.4 million to EUR 36.2 million
Adjustment to guidance for 2016: EBIT before purchase price allocation expected to be EUR 140 to 150 million; revenue target unchanged at 5 to 7% organic growth
Based on preliminary figures for the second quarter of 2016, organic revenue growth for the ElringKlinger Group stood at 5.6%, which is within the target corridor of 5 to 7%. However, as earnings failed to advance at the level originally planned and anticipated by the company, the guidance figure for EBIT before purchase price allocation in respect of the current financial year has been revised to a range of EUR 140 to 150 million.
Revenue continues to show solid growth
On the back of EUR 379.7 million in the same quarter a year ago, the Group managed to lift revenue by 2.9% to EUR 390.9 million in the second quarter of 2016. Adjusted for foreign exchange movements, growth was as high as EUR 22.9 million or 6.0%. This figure includes revenue of EUR 1.6 million contributed by COdiNOx Beheer B.V., a subsidiary that has been fully consolidated effective from April 11, 2016. Taking into account the aforementioned acquisition and FX effects, organic growth in the second quarter amounted to EUR 21.3 million or 5.6%.
Q2 earnings without any significant impetus
At EUR 36.2 million, second-quarter EBIT before purchase price allocation was down by EUR 3.4 million on the figure recorded in the same quarter a year ago. This was attributable primarily to capacity constraints afflicting a business unit within the Original Equipment segment; its substantial fixed costs at an operational level offset the earnings contribution associated with additional revenue. At EUR 4 million, the additional costs – mainly for unscheduled freight consignments and external quality control – in the second quarter were just slightly higher than the figure of around EUR 3 million originally budgeted. At the same time, however, the scale of improvements seen at the Swiss facility during the first quarter was not as pronounced as expected in the subsequent period. This was due to the fact that staffing levels had had to be increased slightly in order to safeguard output volumes, while it had also not been possible to scale back external storage resources required for logistics. Migration of part of the manufacturing operations to Hungary proved slower in the second quarter than originally planned, as it took much longer than anticipated in some cases to secure the customer approvals required in the automotive industry with regard to such relocations; in some cases, these authorizations are still outstanding. While quality control activities were reintegrated as planned, these measures failed to provide the rapid boost to earnings that had previously been expected. With this in mind, the Management Board has responded to the changed situation and will step up its measures further within this area. This will mainly involve intensifying the company's dialogue with customers to ensure faster nearshoring and more efficient internal and external quality control. In turn, this will provide the basis for streamlining personnel costs.
Adjustment of earnings expectations for current financial year
In terms of earnings performance, the Group has fallen short of its own expectations in the first two quarters. Against this backdrop, ElringKlinger anticipates, at most, a slight year-on-year improvement in earnings for the transitional year of 2016 and has now set a guidance EBIT, before purchase price allocation, of EUR 140 to 150 million (previously: EUR 160 to 170 million). As regards revenue, the Group has reaffirmed its outlook of organic growth in the range of 5 to 7%.
"Naturally, we are disappointed at our loss in forward momentum with regard to earnings," said Dr. Stefan Wolf, Chief Executive Officer of ElringKlinger AG. "At the same time, we are confident that partial relocation to a more cost-effective site and optimization of the facility in Switzerland are incisive adjustments when it comes to ensuring the sustained development of the entire unit in question," as Dr. Wolf went on to explain.
ElringKlinger's medium-term outlook remains unchanged: the Group will be looking to achieve annual revenue growth of 5 to 7% at an organic level and an EBIT margin of 13 to 15% before purchase price allocation.
The full financial report for the second quarter and first half of 2016 will be published on Thursday, August 4, 2016.
In connection with this announcement, a conference call will be arranged with CEO Dr. Stefan Wolf and CFO Thomas Jessulat on Friday, July 22, 2016, at 10:00 hrs (CET) for the purpose of elucidating the points presented above.
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