Market news and a muted update from VARTA
Market News
US CPI for July was 3.2%, slightly more than the 3.0% increase in June, and in line with market expectations. The All items less food and energy index was up 4.7%, slower than in June and the lowest level since October 2021. The Fed is expected to hold rates steady at its meeting in September. The dollar strengthened, while yields on 10-year Treasuries rose to 4.10%. Gold slipped to $1,917 an ounce. Brent Crude drifted back to $86.25 a barrel.
US equity markets managed to squeeze out small gains last night but closed near the lows: S&P 500 (+0.03%); Nasdaq (+0.12%). This morning in Asia, markets were weak as concerns over the Chinese property sector persist: Nikkei 225 (holiday); Hang Seng (-0.8%); Shanghai Composite (-1.5%). The FTSE 100 is currently trading 0.6% lower at 7,579.
UK GDP for the second quarter came in ahead of market expectations. In the three months to June, the economy grew by 0.2% driven by an unexpected growth in manufacturing. It rose 0.4% year on year, also above the forecast. The FT reports that deposits at the UK’s four biggest banks have fallen by close to £80bn over the past year as customers look for higher interest rates on their savings, pay off mortgages, and finance the increased cost of living. Sterling currently trades at $1.2704 and €1.1557.
China will allow provincial-level governments to raise about 1tn yuan ($139bn) in bond sales to repay the debt of LGFVs (local government financing vehicles) and other off-balance sheet issuers, people familiar said. The programme will in effect bail out weaker issuers including LGFVs, shifting the debt burden to provincial governments instead.
GM and Ford were among the biggest US market losers yesterday as union leaders call for wage increases and other changes the automakers estimate would add over $80bn in expenses for each of them.
Source: Bloomberg
Company News
VARTA AG has this morning released its half-year results and reiterated its lower guidance posted on 26 July. In response, the shares, which are listed in Germany, have been marked up by 6%.
VARTA produces and markets an extensive battery portfolio from micro-batteries, household batteries, energy storage systems to customer-specific battery solutions for a wide range of applications. The company benefits from technological leadership, innovative products, and strong brand.
In the first six months of 2023, the persistently challenging macroeconomic situation has continued to have a negative impact on the business. Price increases for raw materials, as well as restraint among end customers, have burdened the results. The company had already embarked on a strict austerity course in autumn 2022 and agreed with its financing banks and the majority owner on a restructuring programme, which is currently being implemented. The plan is making progress, with cost reductions in all areas as well as the working capital optimisations are running successfully.
During the first half, revenue fell by 10% to €339m and the group swung from a profit (adjusted EBITDA) of €68.9m to a loss of €6.8m.
The group operates through five divisions. The Micro-batteries segment comprises the micro and hearing aid battery business. Revenue fell 16% to €70m, while adjusted EBITDA fell 23% to €10m. This was driven by a decline in demand, particularly for zinc-air batteries, and higher raw material prices.
The Lithium-Ion CoinPower unit comprises the small-format lithium-ion round cells for OEM applications. Revenue fell 76% to €19.2m due to a significant slowdown in end customer demand as well as the decision by the group’s main customer to diversify its supplier base. As a result, the unit made a loss of €29.4m.
Consumer Batteries includes household batteries, rechargeable batteries, chargers, portable power (power banks), and luminaires. Revenue fell 3% to €142.5m, while adjusted EBITDA fell 43% to €7.5m as only a small part of the significant rise in raw material costs could be passed on to the customer.
Energy Storage Systems revenue grew by 92% to €81.5m, while adjusted EBITDA rose from €2.7m to €11.5m. The unit benefitted from a high order backlog from 2022 and continued high demand for home storage solutions.
Finally, there is an Other division which includes the business units Lithium-Ion Battery Packs and Lithium-Ion Large Cells (V4Drive and RoundPower). Revenue grew by 3.5% to €25.9m, although there was a loss of €6.4m due to lower government grants and a ramp-up in costs for automotive battery production.
Looking forward, an increase in business is expected in the second half of 2023 due to seasonal factors and customer projects starting up. At the time of its July trading statement, the group downgraded its full-year guidance. The company expects sales for 2023 to be around €820m, with an adjusted EBITDA of between €40m and €60m (vs. an original forecast to be at least last year’s figure of €69.5m). On a positive note, rising demand for Energy Storage Systems as well as lithium-ion products is expected to generate revenues of at least €900m in 2024.
Source: Bloomberg