Times are tough Q1 financial report interpretation

"Low growth" and even "negative growth" are the current operating conditions of the car market and may continue in the medium to long term. The downward pressure of the car market brings impact to the front-end sales, but also to the upstream supply chain. Small and medium-sized companies are expected to take the lead on the pressure, but large parts manufacturers also seem to be a bit of a problem. Recently, some international mainstream parts and components companies have issued financial results in the first quarter of 2019. The overall performance of the "big business" parts and components manufacturers is not ideal, and the decline is obvious.

60 second quick reading:
1, the international mainstream parts and components companies, such as electric equipment, Borg Warner, Wei Shi Tong, etc. have shown varying degrees of decline, showing that the "life is not easy" of large factories.
2, the vehicle market recession is the main reason for the impact on the profits of parts companies, but parts companies are also faced with uncertain geopolitical environment, upstream raw material prices and other complex market challenges.
In the medium and long term, parts companies have "slimming down" plans to cut capital spending, but will still invest more in new technologies.

"Downturn" is the mainstream, but there are also companies that are growing against the trend.
In the Q1 results released by some foreign components companies, many parts companies are facing the common dilemma of "hard times." Even large suppliers of components, including those with a high pedigree, have shown declines or slowdowns, such as in electronics and mainland China.

In the first quarter, its revenue was 1.45 trillion yen, up 3.1 % from a year earlier, but operating profits fell 25.9 % to 72.7 billion yen from a year earlier. For the entire fiscal year 2018(April 2018-March 2019), the comprehensive profit of electric equipment also fell by 20.6 % from the previous fiscal year. Aicsson, another Japanese company, also recorded first-quarter revenue(Y1 .03 TN) at the same level as a year earlier, but operating profits fell 35.2 % from a year earlier(Y44 .1 billion compared with Y68 .1 billion a year earlier). Similarly, growth slowed for the mainland group as a whole, with first-quarter sales($11.05 billion) at the same level as a year earlier and operating profits down 17 per cent.
In addition, some parts companies in the first quarter both revenue and net profit are "double drop." American Lear Company, revenue in the first quarter of 5.2 billion U.S. dollars, down 10 % year-on-year; Net profit of 229 million U.S. dollars, adjusted net profit of 253 million U.S. dollars, compared with 354 million U.S. dollars and 345 million U.S. dollars in the same period last year. Ambrose, Germany, reported a 2 % drop in first-quarter revenue of $3.6 billion; Actual net income was $273 million(not based on United States accounting standards), compared with $343 million a year earlier. Another example is the United States Viston, whose sales in the first quarter of 2018 were 814 million U.S. dollars, while in 2019 it fell to 737 million U.S. dollars in the same period; Net income fell from $65 million to $14 million. In addition, including Borg Warner is also ranked in the "double drop."

While some companies saw revenue rise or fall and downward pressure on profits soared, others recorded counter-trend growth in the first quarter. South Korean component company Mobisi has achieved good results. Its sales amounted to 873.78 billion won, its operating profit was 497 billion won, and its net profit was 488.8 billion won. These three dimensions achieved 6.6 %, 9.8 %, and 4.3 % respectively. The year-on-year growth. The reason why modern Mobisi has a good financial performance is mainly due to orders from Hyundai Automobile and Kia Automobile.
What factors affect the earnings of enterprises?
The poor performance in the first quarter of the world's top-ranked mainstream component companies was linked first and foremost to the global slump in the car market. Global car sales fell about 7 per cent in the first quarter, according to HIS, the US consultancy, and sales in China, the US and Europe, the world's three largest car markets, fell in the same direction.

For example, Anbofu's earnings in the Asian region grew by only 1 % in the first quarter, while the Chinese market fell by 12 %. It can be said that the "drag" on the business in Ampoch's China market was one of the main reasons why Anbofu's income fell. At the same time, Anbofu also believes that it is affected by foreign exchange rates and investment in new businesses.
Similarly, weisetone said in its earnings report that the $77 million decline in sales was mainly due to adverse car production and adverse monetary factors, while the decline in profits was directly linked to the decline in sales, and the inefficient transfer of factories in Mexico also had a certain impact. Lear also blamed the market environment for the decline in revenue, and the overall macroeconomy is not optimistic. Lear also went on a planned shutdown to cut production as his trucking customers shut down some of their traditional businesses and switched to a new model. Even under downward pressure, Lear bought Xevo for $320 million in the first quarter.

Therefore, in addition to the sluggish demand in the downstream vehicle market, the new business investment for the future, exchange rate factors, production capacity changes, etc. are the reasons for the "weak" performance of parts companies in the first quarter. In the poor market conditions of the vehicle market, the vehicle company will stimulate consumption, in fact, some of the costs will be passed on to upstream parts companies; In addition, with the increasing maturity of the market, the competition between parts manufacturers is also more intense; Coupled with the fluctuation of upstream raw material prices. From a global perspective, such as the Brexit in the United Kingdom, the Sino-U.S. trade friction, etc., the global trading system is also affected by political activities. These factors themselves pose a great challenge to the revenue of parts companies.
How do components companies see the future?
In fact, parts companies have long been prepared for the pressure brought about by changes in the global car market. In an unstable world economy and geopolitical environment, the performance of the first quarter was also in line with business expectations. Different companies have different plans for this year.
On the one hand, companies will step up their expansion into new businesses, although some may not be able to make a significant contribution to the current company's overall earnings, and may even offset some of the growth caused by old businesses. However, in the long run, it is still the growth point of the company. Sales of automatic gearboxes will not grow much this year, but investment and production costs will rise, according to ictic. Obviously, business pressure will not affect the company's investment in new technology.

Although Borg Warner was in a "double drop" in the first quarter, Tanyuesheng, vice president of Borg Warner Global and president of China, believes that electrification will be the fastest growing breakthrough. Borg Warner's electrification business also grew faster than the internal combustion engine business, which is one of the company's next major growth points. Because the overall car market fell 11.3 % in the first quarter of 2019 from a year earlier, sales of new-energy vehicles rose 109.7 %, according to the China auto Association. Mr Anbofu has a similar view, with Mr Anbofu suggesting that the profit margin challenge could be resolved in the next two quarters of the year and that new businesses, including electricisation, could generate strong growth.
In addition, measures such as reducing costs and fine-tuning operations are also the natural response of companies in the face of crisis. In its recent 2018 earnings release, although it hasn't released its first-quarter results yet, maler said the company's major business sectors have been weak since the fourth quarter of last year. In this year's health plan, maler hopes to improve operational efficiency by improving cross-functional cooperation and streamlining processes, and gradually increase profitability. The strength of this "cost reduction" is evident in the fact that many aspects, including personnel costs, daily expenses, travel, and exhibitions and services, are included in the plan.