VARTA AG is responding to the challenges with a strategic reorientation and stopping the construction of a battery factory for V4Drive EV.
In the first nine months of the 2022 financial year, the sales of the VARTA AG Group fell by 8.3% compared to the same period of the previous year, from €622.3 million to €570.7 million. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) fell by 63.6% year-on-year from €182.5 million to €66.4 million.
VARTA AG continues to find itself in a challenging economic situation. Global crises with rising energy and raw material prices, pandemic-related production losses on the part of customers, shortages of available semiconductors and negative consumer trends continue to burden the company.
In response to this, the Management Board of VARTA AG has launched a comprehensive package of measures to reduce costs and increase profitability and is working on far-reaching solution concepts. The construction of the new factory for round cells/V4Drive will only continue once binding customer commitments have been received.
Series production operations are proceeding according to plan and will in future supply the cells to fulfill the OEM contract with a premium automobile manufacturer.
The currently challenging economic situation is particularly affecting the demand for lithium-ion batteries in the lithium-ion CoinPower business. The company is temporarily implementing short-time work at the Nördlingen production site in the CoinPower division, which was particularly affected.
VARTA thus adapts to fluctuations in capacity utilization, but can ramp up production capacities again at short notice at any time.
The strategically important “household batteries” segment, which includes the business with energy storage systems and household batteries, has seen increasing demand since the beginning of the global crisis. It thus remains an important growth driver for the company.
dr Markus HacksteinSpokesman of the Management Board of VARTA AG, comments:
The situation for the company remains challenging in a tense economic environment for all of us.
“Through comprehensive solution concepts, VARTA should be in the right position to open up important future markets. A clear focus is on the growth market of energy storage systems. We are positioning the company strongly in this segment in order to meet the persistently high demand.”
Armin Hessenberger, CFO of VARTA AG adds:
Short-term approvals from our customers pose challenges for VARTA.
“We are now implementing cost-cutting measures to future-proof the business. Here we want to remain structurally flexible.”
Subdued consumer demand negatively impacts the Lithium-Ion Solutions & Microbatteries segment
At the end of the third quarter of 2022, sales in the “Lithium-Ion Solutions & Microbatteries” segment amounted to €274.2 million, which corresponds to a decline in sales of 25.1%. The currently challenging economic situation and subdued consumer demand are affecting the demand for lithium-ion rechargeable batteries for True Wireless Stereo Headsets (TWS) in the Lithium-Ion CoinPower segment.
VARTA is reacting to the subdued demand with a package of measures to reduce costs, which includes capacity adjustments in production and measures in the personnel area. However, the company can be fully utilized again in the short term in order to take advantage of any additional growth opportunities that arise.
The production activities for the new product launches expected in the second half of the year are now starting, albeit with a significantly reduced volume compared to the original plans.
In the first nine months of the 2022 financial year, adjusted EBITDA fell from €140.4 million in the same period of the previous year to €50.4 million. In comparison to the sales development, this means a disproportionate decline.
Lithium Ion Solutions & Micro Batteries
High demand for household storage drives further growth in the “household batteries” segment
The Household Batteries segment includes consumer battery and energy storage system business. In the first nine months of 2022, sales in this segment increased from €256.5 million in the same period of the previous year to €296.5 million.
This corresponds to sales growth of 15.6%. This pleasing development is primarily due to the significant growth in the energy storage systems business, which is benefiting from the very high demand for home storage systems.
Adjusted EBITDA fell by €26.1 million from €42.1 million to €15.9 million, which corresponds to a decrease of 62.1%. The significantly increased raw material prices and considerable additional energy costs are having a negative effect here. These increased costs could only be partially passed on to customers.
The adjusted EBITDA margin is 5.4% of revenue, down 11.0 percentage points year-on-year.
Outlook: VARTA AG adjusts capacities in the CoinPower area and implements cost-cutting measures
VARTA is well positioned in its core markets. Nevertheless, the significant weakening of the demand for CoinPower cells (TWS) and the increased raw material and energy prices lead to a decline in sales and a high result compared to the previous year. A further complication is that the increased costs can only be passed on in part and only with a considerable delay.
While the direct effects of the war in Ukraine on the company are small, VARTA is indirectly badly affected by the war. As a result of the outbreak of the Ukraine war, raw material and energy costs have risen sharply and it is not possible to estimate how long these price increases will last or even continue to rise.
The company passes on cost increases, at least in part, to customers in the form of price increases. However, this will only be implemented with a time lag and depends on the market and competitive situation. In order to optimize the operative cash flow, VARTA aims to reduce inventories.
Our customers are temporarily affected by their own production interruptions and are therefore unable to purchase any products or only reduced quantities from us. The reasons for this are the ongoing pandemic, the effects of the war in Ukraine, the limited availability of semiconductors, but also the decline in consumer spending.
The negative economic environment weighs on consumer spending, which in turn leads to capacity adjustments among our TWS customers. Customer projects in the high-margin “Lithium-Ion Solutions & Microbatteries” segment were not canceled as planned, which led to a decline in sales and earnings.
Other business areas, such as Consumer, posted sales growth. Due to a significantly higher proportion of raw materials, however, these products are subject to disproportionately high price increases. These developments in the two segments “Lithium-Ion Solutions & Microbatteries” and “Household Batteries” have led to a negative development of the sales and earnings mix.
In view of the diverse risk situation, Group sales of between €805 million and €820 million (2021: €902.9 million) are expected for the 2022 financial year.
The adjusted operating result (adjusted EBITDA) is expected to be between €55 and €60 million and thus below the previous year’s figure of €282.9 million. The effects described above have a negative impact on the company’s earnings development.
In order to be able to meet the current and future challenges, the Management Board has launched a comprehensive package of measures to reduce costs. The CAPEX – payments for the acquisition of intangible assets and property, plant and equipment – are expected to be below the level of the previous year and amount to between €105 and 115 million.
The capacities for CoinPower cells (TWS) will be reduced. Depending on the demand situation, however, the capacities can be expanded again at short notice. In the course of these adjustments, the company is also making personnel changes and has announced the introduction of short-time work in the Lithium-Ion CoinPower area at the Nördlingen production site.
The construction of the new plant for the round cell/V4Drive will only continue once binding customer commitments have been received. The operation of the first series production plant is continuing as planned and will in future supply the cells to fulfill the OEM contract with a premium car manufacturer.
For the 2023 financial year, the Management Board of VARTA AG expects sales of between €850 million and €880 million and expects adjusted EBITDA of between €90 million and €110 million in the 2023 financial year.
This forecast is based on the assumption that the challenging economic situation and existing global crises will continue in 2023, with corresponding negative consequences for costs, supply chains and consumer demand.
The range of forecasts takes these expected negative developments into account. However, the further course of the development of energy costs, raw material prices and supply chains for the coming year can currently only be estimated to a very limited extent. Therefore, the forecast for the 2023 financial year is subject to greater uncertainty than usual.
- Technology group generates sales of €570.7 million in the first nine months of the 2022 financial year.
- Adjusted EBITDA fell from €182.5 million in the prior-year period to €66.4 million.
- Continued good demand for household batteries and energy storage systems. Sales in the “household batteries” segment increase from €256.5 million to €296.5 million.
- Rising energy and raw material costs as well as logistical bottlenecks in semiconductors continue to impede business development.
- Reduced customer demand for lithium-ion batteries for True Wireless Stereo Headsets (TWS) in the Lithium-Ion CoinPower segment.
- Package of measures to reduce costs started with temporary capacity adjustments in production and measures in the personnel area.
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VARTA AG decides on strategic realignment in response to challenges, November 15, 2022