VDL remains profitable, despite coronavirus impact
The impact of the coronavirus crisis has not passed VDL Groep by over the past six months. In the first half of 2020, both revenue and profit of this industrial family business headquartered in Eindhoven were down on the same period last year. On a positive note, the strategy of spreading risk through diversification has led to VDL posting a profit for the first half of 2020. The coronavirus crisis has mainly hit the automotive industry hard, while other sectors such as high-tech, infrastructure, food, and health have borne less of the brunt of the crisis. Given that market demand is picking up, there is confidence for the second half of 2020.
Consolidated revenue for the first six months of 2020 came in at 2 billion euros, which is a 32 percent drop on the first half of 2019 (2.9 billion euros). Net profit for the first two quarters was down from 76 million euros last year to 25 million euros this year. VDL Groep’s order book (not including the Car Assembly division) increased from 1,158 million euros in week 1 of 2020 to 1,231 million euros in week 35. Since the end of 2019, the workforce has shrunk by 2.6 percent to 15,320 employees in week 26.
Tough first six months
‘We look back on a tough first six months,’ explains President and CEO Willem van der Leegte. ‘At a number of our units, production was halted partially or even fully, as virtually all our 104 companies were affected by the crisis in one way or another.’ The coronavirus crisis is about the availability of three factors: materials, staff, and market demand. If we want to be able to produce, we need these three factors at the same time, in sufficient quantities. In various industries, one or more of these factors were only partially available or not at all.’ Van der Leegte: ‘That we, thanks to our strategic spreading of operations and our capacity to adapt, still managed to turn a profit and have kept all our permanent employees on board inspires us to be optimistic going forward.’
Given that the coronavirus crisis has led to considerable revenue loss for VDL, the company has used the Dutch government's first relief scheme (NOW) to preserve jobs. The government’s advance of 50 million euros was used to pay the salaries of workers who temporarily had no or insufficient work to do. VDL greatly appreciates the rapid, deep, and broad relief scheme through which the government has supported businesses. Seeing as VDL has so far also seen revenue drop significantly over the reference period for the second government relief scheme (NOW-2), VDL has also applied for support under the second relief scheme.
Revenue at this division was up from 649 million euros last year to 700 million euros in the first half of 2020, largely on the back of demand in markets such as high-tech, infrastructure, food, and health. The focus on high-quality innovation has further strengthened our position in these sub-markets. The Subcontracting division closed the first half of 2020 with a profit.
As is widely known, the number of cars to be manufactured at VDL Nedcar in 2020 is down on 2019. After two quarters, revenue has reached EUR 903 million, compared to EUR 1,620 million a year ago. Due to emission standards, global trade relations and disruptive developments, the car industry is experiencing turbulent times. Add to that the corona crisis, causing VDL Nedcar to interrupt its production process for more than six weeks in March. Production was resumed in two shifts in early June. Global market demand for new cars was further reduced due to corona. VDL Nedcar will also not manufacture the additional BMW model for which it agreed a contract with BMW Group in 2019. We are currently in discussions with our client about the follow-up of other possible new models so that we can permanently extend our collaboration with BMW, as well as secure jobs in Born for the long term. We are also in discussions with potential new clients who are looking into having cars manufactured in Born. To be able to facilitate new customers, we and the Limburg provincial authority continue to focus on the so-called PIP procedure to make our site future-proof. As an independent car manufacturer, flexibility is one of VDL Nedcar's core competencies. The fact that VDL Nedcar received a staggering three JD Power awards in the first six months is a wonderful compliment to our members of staff. One for the MINI Countryman, one for the MINI Cooper, and the plant was crowned the third-best car manufacturer of Europe and Africa in terms of quality. Another milestone is that last week the 800,000th car for BMW Group rolled off the production line in Born. VDL Nedcar was profitable in the first half of 2020.
Buses & coaches
Revenue at this division was down over 50 percent, falling from 308 million euros in the first half of 2019 to 146 million euros in the first half of 2020. The coronavirus crisis has led to uncertainty in market demand for buses and coaches. With the travel industry virtually paralysed, the demand for coaches is almost nil. When it comes to buses for public transport, a number of tendering procedures in the Netherlands in particular look like they will be postponed, which will have great impact on the production of public transport buses. Outside the Netherlands, we are seeing tendering procedures go ahead in the context of decarbonising public transport. Given that three factors (materials, employees, and market demand) were not sufficiently available at the same time, several line production companies that are part of this division were forced to temporarily suspend production during the first half of 2020.
What is making 2020 a particularly challenging year for the Buses & coaches division is the fact that contracts for the manufacturing of hundreds of electric buses for concessions in the Netherlands were awarded to Chinese competitors. We continue to call on governments to take action at a European level to make sure our high-quality manufacturing industry does not disappear, which would have major consequences for jobs. Buses & coaches is a loss-making division. In 2019, VDL Buses & coaches showed that it is on the right track. Due to the impact of the coronavirus crisis and the absence of a global level playing field (due to state aid, import levies, internal market protection, working conditions, environmental legislation), VDL Buses & coaches was insufficiently able to maintain the upward trend.
Our companies that make up the Finished Products division jointly generated 232 million euros in revenue over the first half of 2020, compared to 346 million euros over the same period in 2019. This drop came due to falling market demand at companies in this division as a result of the coronavirus crisis. The Finished Products division closed the first half of 2020 with a profit.
Although it is barely possible under the current circumstances to look ahead with any certainty, VDL Groep is moderately positive about the second half of 2020. Our order book shows that market demand is picking up, which leads us to expect that the second half of 2020 will be better than the first half. Due to the impact of the coronavirus crisis, neither revenue nor profit for the whole of 2020 will reach 2019 levels. VDL Groep’s revenue for the whole of 2020 is projected to come in a quarter lower than last year. Despite the fact that we will continue to be extra critical when it comes to spending in the current conditions, investment programmes in the areas of innovation and digitalisation will, alongside job preservation, continue to be important.