Edited Transcript of ED4.DE earnings conference call or presentation 7-May-20 8:30am GMT

Our strategy in this phase on the market is to further push towards new technologies and to support our customers with our competence in all areas of future mobility. We are absolutely convinced that our customers will need our competencies in many fields.

Let me give you now an overview on these market trends at the next page. A recent study from Zinnov about the impact of the new coronavirus in the automotive industry highlights 3 fields, which I would like to underline. First, a shift in customer preferences, which had moved away from car ownership to share is expected. The private car is expected to see a revival, although the overall auto sales will shrink heavily in 2020. Second, OEM will reprioritize their R&D spending. A big chunk of budgets will be continuously placed in connectivity and other features. This supports the positive development of our Electric/Electronics segments in order to enhance productivity and efficiency in the production where we put more attention on the Industry 4.0 and Smart Factory initiatives, a very good sign for our Production Solutions segment, which underlines the attractiveness of these operations. Third, offshoring and outsourcing decisions will take a center stage at OEM in order to meet cost efficiency targets. The current market situation proves that remote working near and offshoring delivers the required results. So OEM will get more and more comfortable with the idea of outsourcing. This development is expected to push the ESP market. Moreover, OEM will focus more and more on their future core competencies, in order to make internal resources available for these topics. Especially, body engineering work is expected to be increasingly outsourced, a development which supports our Vehicle Engineering segment. So overall, the market trends show significant potential for the engineering service providers. EDAG, as one of the leading engineering service providers to the global automotive industry, is well positioned and prepared to take these opportunities.

Ladies and gentlemen, let us now come to the key highlights of the first quarter.

Looking at our Q1 numbers, the first plant is unfortunately not satisfying. But in light of the current environment, we have managed to stay profitable and cash positive. In Electrics/Electronics, we have even continued to stay on a growth path. With the ratio for net financial debt without leasing to equity of 60%, our financial position is strong. Moreover, we have managed our trade working capital very well and reduced it by about 15%.

Apart from our financial figures, we have also had a big success in managing the shortage of masks. Creative EDAG engineers have developed a 3D printed kit that can be used to assemble face masks. In the first step, we have supplied our more than 8,000 employees worldwide with our Mask4All.

As we all recognize the extremely high demand for masks, we have partnered with 2 companies in Fulda to produce high amount of Mask4All. Until today, more than 220,000 kits have been ordered by commercial customers, municipal facilities and private individuals. With this initiative, EDAG makes a pragmatic contribution to overcoming the corona crisis. For private customers, the EDAG Group has also made a 3D print data available to download for free on this website.

So far from my side for the moment. Please let me now pass on to Holger Merz who will provide you with the financial details on our first quarter. Holger?

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Holger Merz, EDAG Engineering Group AG – CFO & Member of Executive Board [3]

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Thank you, Cosimo, and good morning, ladies and gentlemen, also from my side.

Overall, revenues in the first 3 months were down by 2.4% to EUR 193.2 million. Looking at our 3 segments, we see a mixed picture. Our biggest segment, Vehicle Engineering, maintained its high revenues of about EUR 124 million. Electrics/Electronics is again outperforming with a revenue growth of 4.5%. Production Solutions, on the other hand side, shows a decline of 8%. The demand in the area of painted body remains muted while Smart Factory-related topics are well-requested. Overall, the speed of revenue decline in Production Solutions was significantly reduced compared to the previous quarters.

At the next slide, we show our order intake and our order book. The level of order intake and the order backlog is, as you will have expected, below the previous year’s figure. Whilst Vehicle Engineering and Production Solutions are facing a decline in order intake, Electrics/Electronics shows an increase.

Let me give you a bit more visibility on what these numbers really mean. If you look at the order range and the starting point of new projects, we expect very challenging months ahead of us in all 3 segments. As Cosimo stated in the beginning, new contracts that we are currently negotiating are expected to start in the course of Q3 this year. This means productivity and utilization rates are expected to be muted at least for the current quarter. Although we are not guiding on a quarterly basis, we are expecting a sequential improvement in utilization beginning in Q3. In reverse, this means that Q2 is expected to be the worst. Overall, we remain absolutely confident that the demand will pick up stepwise in the course of the year.

Let us have a quick view on our adjusted EBIT. Overall, the adjusted EBIT margin level is at 2.0%. Despite an extraordinary high level of volatility in utilization and partial lockdowns in China, Spain, Italy and the U.S., our 2 biggest segments managed to stay profitable with a margin of 2.5% at Vehicle Engineering and even 4.7% in Electrics/Electronics. Production Solutions on the other hand side posted a negative margin of 5.2%.

Looking at our expenses, I would like to highlight 3 points. First, we have managed to keep the share of our personnel expenses in combination with external services at a good rate of 72.9% compared to 72.4% last year. Second, the share of material expenses went up from 6.9% to 10.5%. This is due to a major contract for retrofitting of small series of vehicles with fuel cells. As already announced in our call in April, this project has been stopped at the end of March. So in the course of the next quarters, material expenses are expected to decline, but unfortunately also sales. Third, our expenses declined by 60 basis points as a result of our savings programs that we have started immediately in Q1.

Let’s have a quick view on our EAT and equity at Slide 10. Earnings after tax in Q1 were slightly positive. The equity ratio decreased year-on-year, but comparing the total equity at the end of Q1 with the end of 2019, we have managed to increase it by EUR 1.8 million.

Let’s move to the development of headcount and CapEx at the next slide. The overall headcount decreased by 336 to 8,345 employees compared to the end of Q1 2019. Within the first quarter, headcount decreased by 143 employees as we are currently only hiring where absolutely necessary and using normal fluctuation to reduce our cost base. Looking at the number of employees in our 3 segments in Q1, we are posting a decrease of 212 employees in Vehicle Engineering and a decrease of 211 employees at Production Solutions. In Electrics/Electronics, on the other hand side, we have increased our staff by 87 employees. This is a clearly encouraging signal as it shows that we are not only able to generate new contracts, but also to win the right talent for the market in this segment.

CapEx is down to EUR 4.4 million, the CapEx ratio levels at about 2.3 percentage of revenues. Overall, every invest is put on test, and we only invest in areas where it is vital.

At the next slide, we show the development of our trade working capital. As we already carried out in our call in April, cash management and working capital management is of utmost importance in the current environment. So I’m happy to present a decrease in trade working capital of more than EUR 20 million compared to the end of Q1 last year, another proof for the effectiveness of our measures.

Looking at the cash flows, we see a decrease in the operating and the free cash flow. However, posting positive cash flows in the current market phase is a great success, especially when we look at the extreme strong cash flows that we are already recording at the end of last year. This is yet another sign of our financial strength. However, I would like to remind you that we have a certain seasonality in our cash flows. So for the next 2 quarters, we expect cash flows to turn negative.

The net financial debt, including leasing at March 31, slightly decreased compared to the end of Q1 2019 to EUR 235.7 million. The net financial debt without leasing decreased to EUR 77.8 million. This corresponds to a ratio of net financial debt-to-equity of 60%.

Before coming to our outlook, let us have a quick view on our liquidity and the measures that we already took. In order to be prepared for an economic crisis scenario, we have significantly built up our liquidity. At the end of Q1, cash and cash equivalents amounted to EUR 63.2 million. Additionally, we have available and unused credit lines of EUR 101.3 million. So overall, our liquidity was at EUR 164.5 million. So same for the end of 2019, we do have a very comfortable cash position.

In addition, we have taken further crisis management measures to counterbalance COVID-19 impacts as good as possible. With our strict cash and cost management, we have maintained free cash flow positive and even lowered our trade working capital. The ratio of other expenses decreased by 60 basis points. Wherever necessary and possible, we send employees with temporary underutilization into short-term work. This helps us to keep costs at a low rate without losing good people that we will need in future.

As we are currently working on a scenario-based planning model, we have prepared further measures, and we are ready to take further steps whenever it becomes necessary.

So overall, and as we already said during our last call, we are expecting tough times over the coming weeks and maybe months, but we are well prepared. We have enough liquidity and if necessary, further measures can ready to be taken.

Finally, let us come to our outlook for 2020. Due to the continued extraordinary and extremely high dynamics and uncertainties, we have maintained our outlook as stated at the beginning of April. Overall, we expect a decline in sales and earnings for the financial year 2020 compared to the previous year, which is — in the worst case, can have a significant impact on the earnings situation. We continually monitor possible effects on the business and take comprehensive measures to ensure the protection of our employees and the continuation of business operations in the group companies. The current situation in the next weeks and months may be one of the most challenging times ever recognized by the automotive industry. However, challenging times always be opportunities, and we are well prepared to take these.

Ladies and gentlemen, thank you for listening to our report, our Q1 figures. We are now looking forward to answering your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Christoph Laskawi of Deutsche Bank.

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Christoph Laskawi, Deutsche Bank AG, Research Division – Research Analyst [2]

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The first one would be on potential projects for Production Solutions in currently idled plants in Germany or across Europe. You indicated that you have seen some projects there. Could you give us a rough indication about the potential size that you might be able to do in Q2 and going forward? And would you see those projects rather as a shift forward from potential retooling or whatever in the summer break? Or do you think you can replicate revenues or get other projects also in the summer? That’s the first question.

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [3]

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Okay, so I will take the question. Yes, I was mentioning new project in Production Solutions. And also, as I stated for the other segments, we have very, very good promising meetings with our customers, Production Solutions at the moment, which will have an impact on the revenues on Q3 and Q4. So it’s, of course, a positive message. These projects are not only linked, let’s say, to the potential pause of the plants in summer. So we are talking about here technological projects. As you know, we work very close with the 3 segments like in simultaneous engineering where we have an innovative approach for our customers to reduce, let’s say, the development cycle and let’s say to avoid mistakes in the production later on. So these are the kind of projects we are discussing at the moment, I will say, nationally and internationally, and not only in the automotive industry since as I stated also during the last call in April, we are also approaching other industries as Production Solutions because their knowledge, their know-how in the automotive is very interesting also for other sectors. And this is exactly where we are, let’s say, focusing our sales activities at the moment. So we have a promising pipeline.

Of course, the corona crisis has an impact also on Production Solutions. But as we can say today, the plan we had last year to reduce the workforce, to increase new — workforce in new technologies like Smart Factory and Industry 4.0 and to reduce the workforce in, let’s say — I will say more old-fashioned topics like painted body was the right measure we took in 2019, and we see already now all the fruits of the measures we took in 2019.

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Christoph Laskawi, Deutsche Bank AG, Research Division – Research Analyst [4]

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Second question will be on the pricing in the industry. What we hear when we discuss what market participants is essentially that smaller shops are very aggressive in fields, which will be your Vehicle Engineering business essentially because they fear to go out of business if they don’t get the projects which are currently tendered. So essentially, going back to being very price aggressive as we’ve seen a couple of years ago. Do you share that view or would you say the environment is rather stable also in Vehicle Engineering?

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [5]

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Okay. So I will say that the price pressure on the market is still very high like I stated 4, 5 weeks ago during our financial call for 2019. So I agree with your statements. There are many small market participants at the moment. They’re very aggressive in prices because they’re, of course, fighting for their existence. But I expect this, let’s say, it’s of course a shorter-term effect where these small companies try to survive. On the other hand, we have also project requests coming from customers. They state, “Okay, I decided last year to take the supply because it was very cheap but as of today is not able, let’s say, to deliver the project. So please step in again.” So we have also this kind of situations, which make us a bit more confident in terms of pricing. Because at the end of the day, I think the automotive industry has to focus on innovation in the future if you want to survive. So if the — to get or to deliver the right innovation topics, I think EDAG is one of the first address in the market. And that’s for sure, for us, a potential for the further development of the market.

But as of today, prices remain low. We know that. On the other side, for high technological aspects, the price are still decent.

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Christoph Laskawi, Deutsche Bank AG, Research Division – Research Analyst [6]

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I mean, in the medium term, this should lead to a consolidation of the industry or at least some shops going out of business. What do you think in terms of capacity of the market which would need to be taking out in order to return to a more normalized price level? Is it like 10% to 15% or even more?

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [7]

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Let’s say, it’s, of course, a difficult question. It’s also depending on many factors. For sure, we will have in the future, so what I call, the new normal. In the new normal, we will have, of course, less derivatives compared than today. That means that a big part of the classical Vehicle Engineering, which is development of derivatives, will, of course, has an impact on that. Also, if you talk about testing, the less cars on the market you have, the less testing you need. On the other side, it’s always a matter also of customer portfolio. So if we have the possibility to increase our customer portfolio, on the other side, we can counterbalance the shortage for one customer in terms of vehicle engineering and use our workforce also for the customers. So it’s a balance between both. I expect from the German market, of course, to reduce the classical level of vehicle engineering in the upcoming months. On the other side, I’m fully convinced that innovation is the most important aspect where the German industry has to invest in the future in order to maintain a technological leadership. That means that close to the classical outsourcing project in terms of derivative, I think there are many — many opportunities in the market concerning innovation, concerning new topics where EDAG can have an added value.

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Christoph Laskawi, Deutsche Bank AG, Research Division – Research Analyst [8]

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Last question from my side is when the business ramps up again and you see projects, potentially more projects coming on stream in Q3, Q4, do you expect OEMs to ask for even higher shares of low-cost countries in your mix? And if that’s the case also for the longer term, how do you think about the capacity that you have installed currently in Germany? And do you need to adjust that downwards quite quick? Or would you see the market normalizing at a level where you actually find and only need to build up low-cost country staff?

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [9]

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Okay. So let’s say, for me, 2 years ago, as we decided to push a lot on the best cost countries, it’s exactly in line with what was it happening now. And now it’s only happening, let’s say, an acceleration of this market trend. I think the market will more and more focus on delivery optimization, which means also you will see more and more best cost countries. As of today, as I stated at the beginning of my presentation, I think the customer will understand at the use, of course, are using now this opportunity to understand that a delivery independent on the place where you deliver can be also a fact for the future. So they were in the past, as you know, automotive industry is very reluctant to new business models. I think the crisis or this pandemic of corona show to everybody on the market that in this direction, we can accelerate on that. So at the moment, all the offers we are giving have, of course, a best cost part, which is a part of our business. So we do it every day. We don’t see any increase, let’s say, or demand for increase in this part. This is a normal challenging approach when you are on the market where you have to take into account deliveries versus cost of deliveries. So I think we are exactly on track on that.

I do not expect a strong reduce in Germany because in Germany, we still need experts, and that’s exactly why Holger Merz, during the presentation, said we are using now this short-term work in order to be prepared for the next phase. So for the key players on the market, we want to maintain that. We want to keep that, and that will allow us to increase our offshore capability in the future because with a very important project management in Germany, you will have the opportunity to increase your best cost percentage in your delivery.

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Operator [10]

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The next question is from Marc Tonn of Warburg Research.

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Marc-René Tonn, Warburg Research GmbH – Senior Analyst [11]

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Yes. First question was if you could give us some more detail on the actual shortfall you’re currently experiencing at the top line, perhaps in terms of a run rate. It’s fully understandable if you can’t say whether it gets better from there or worse from there, but to give us some feeling on what you are currently, let’s say, missing in terms of revenue at the decision by customers to postpone certain projects. That would be helpful.

Secondly, on the short-term work, I’ve missed that perhaps. You can give us a number on how many people are actually now in short-term work? And how much did you cut your capacity? And what does it mean for your personnel costs? So how much of these employees costs are still sticking with you?

And the third question would be perhaps a bit more detail. I think in the first quarter, we’ve seen, let’s say, comparatively stable revenues, this decline in profits. I think there was a onetime positive in personnel costs last year, but this was the only reason or what your thoughts are about the profitability level you had in the first quarter?

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [12]

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Okay. So I will take the first question and a part of the third question. I will let Holger to give you an answer to the second part.

So the first question was not so good the communication. Let’s say, it was in terms of the customer, what is the feeling about the market. So we are in very close contacts with our customers. I think with this extraordinary situation, we had the opportunity to have a really very interesting chat with our customers and we are all in this automotive market.

So in terms of what is happening at the moment, of course, our customers have the same ambition, the same target that we have, which is keep up liquidity and focus on their trade working capital in order to protect their companies. At the moment, we have a clear picture by our customers which project has been — or they want to be — has to be postponed. Which project stay, let’s say, very important at the moment because an SOP is vital for our customers. So we have a clear idea, a clear picture, which kind of project will continue and which project or, I would say, big project will not continue, let’s say, in the upcoming months or they have been, let’s say, postponed between 3 months and 12 months. So thanks to this information. We have of course the opportunity to do a good plan, let’s say, in terms of capacity for the upcoming months. And that’s the reason why we are using also short-term work because we know exactly — we know more or less what is coming on, what will come up in the — as big projects in the next quarters.

In Electrics/Electronics, especially in the areas I mentioned at the beginning of the call, which is IT embedded system, the demand is very sustained. So I think the market is — the customers are really taking the opportunity of corona to accelerate in their innovation path in terms of connectivity, in terms of driving assistance systems, even if many actors of the market mentioned in the past year, we want to delay these projects. So the perception we have on the market, all these kind of activities are really on track. And this is the reason why the demand is sustained. And it’s also the reason why E/E segment, even in this difficult situation, posted a growth of 4.5% in the first quarter. So we expect a demand sustained — to be sustained in Electrics/Electronics. Of course, going down in Vehicle Engineering, Production Solutions compared to last year, but in any case, confident about the recovery of the market, which, of course, will have according to me, a U shape. So there will be a rebound in Q3, not a real catch up, not a V curve, but for sure, a U curve because this is necessary. And when I talk to a customer, they say to me, “We are also — it’s very important now to use ESP in order to recover the time we have lost.” Because in innovation, if you lose 3 or 6 months of innovation, there’s a big danger that you will lose your technological leadership on the market. That’s the reason why we are in close contact to them, and they will use us starting from Q3 in order to catch up in the innovation projects.

Concerning the third question, which was in terms of, let’s say, what was going on in the first quarter and so on. Why it is like this? So the first quarter was a very challenging quarter for us. Why? We have different, let’s say, situation to be managed. First of all, the utilization was very volatile and also depending on many different locations and departments. So we don’t have, let’s say, a decrease everywhere in every segment, in every location. It’s really different — depending on the location and depending on the departments. That was the first effect of Q1.

The second effect, of course, was we were affected by the shutdown that were already in place in China, in Spain, in U.S. and in Italy. So situation in China, we had a very difficult situation in January, February. The situation is recovering now starting from mid-March, but we are not yet there where we have planned to be at the beginning — or at the end of last year. In Spain, as you can imagine, Spain is a big P&L for our revenue outside Germany. The situation was very difficult with the customer fear with the lockdown. In the U.S., we have, at the moment, 100% lockdown, so all the people are working in home offices there.

And in addition to these 2 effects, I will say the third effect was also we had some ramp-up costs at the beginning of Q1 for a new project that will start in Q1, so that we had to manage, let’s say, there with some issues in this ramping up. So we have to manage more costs than planned for the Q1. So these are mainly the 3 effects that affected our figures of the first quarter.

Concerning the short-term works, I will let Holger to give you the clear number concerning this.

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Holger Merz, EDAG Engineering Group AG – CFO & Member of Executive Board [13]

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Yes. I take you — this is the second question of you. In April, there were approximately 900 FTEs in short-term work in Germany, but we have negotiated with our work council new regulations about short-term work. EDAG will not pay any extra money on the top of the granted short-term work payment from the government. Only for social hardship cases we pay extra money on the top. Orientation is the statutory pledge limit. We changed the company agreement to put it through. So by sending people into short-term work wherever necessary, we can directly lower our cost base.

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Marc-René Tonn, Warburg Research GmbH – Senior Analyst [14]

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Are there any, let’s say, similar systems or schemes running at the facilities outside Germany?

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Holger Merz, EDAG Engineering Group AG – CFO & Member of Executive Board [15]

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Yes, there are also some short-terms regulations in, for example, in Spain. In some countries, there are existing some similar regulations. But I think, yes, the German regulations are currently the best ones.

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Marc-René Tonn, Warburg Research GmbH – Senior Analyst [16]

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And do you have some kind of a number on what you’re currently, let’s say, first, when we’re looking at April and you see what might be the down month on revenue in the specific month. Is there a figure you could give us?

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Holger Merz, EDAG Engineering Group AG – CFO & Member of Executive Board [17]

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Yes, that means our productivity will have a sharp decline in April and maybe also in May. We think that we have a decline of about, yes, 20% to 25% compared to our normal utilization.

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Marc-René Tonn, Warburg Research GmbH – Senior Analyst [18]

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And there should also be, let’s say, the negative impact on top line? Or the top line a little bit worse than that?

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Holger Merz, EDAG Engineering Group AG – CFO & Member of Executive Board [19]

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Yes.

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Operator [20]

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The next question is from Harald Hendrikse of Morgan Stanley.

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Harald Christiaan Hendrikse, Morgan Stanley, Research Division – MD [21]

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So thank you for that discussion on Q2, which I think everybody is looking at, and we understand that that’s incredibly difficult for you to forecast at this stage. But — so I mean, I think we can conclude and maybe you can confirm that, I mean, if 900 people are on short-term work and your utilization revenue might be down as much as 20%, 25%, you should still have a reasonable amount of operating leverage on that, i.e., not all of your labor cost savings can be made up relative to that revenue, it sounds like. So maybe again, I know you’ve given us a lot of detail already, but anything there is useful.

And then secondly, continuing, I suppose, on the same thing. My sense with your business is that your revenues are probably a little bit lagged relative to the decision-making at the OEMs, which is obviously one of the reasons why the OEMs have already suffered badly in Q1 when Q2 is really more dramatic for you guys. What visibility do you have on Q3, i.e. if Q2 is down, I don’t know, let’s say, 20% or 15%, and it improves a little bit in May, June, what sort of number — do you think you can get back to flat revenues for Q3 already? Or would that be a little bit too aggressive? What visibility can you give us for the next few quarters? And I’m sorry, that is a little bit short term, but that is what everybody is focusing on right now.

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [22]

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Yes. So I will let — I will say, Holger, you can perhaps answer this first question. I will focus on the second one.

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Holger Merz, EDAG Engineering Group AG – CFO & Member of Executive Board [23]

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Yes, okay. Yes, maybe in my presentation, I already mentioned that the second quarter will be the worst one. What I can tell you is that we expect utilization in April and possibly also May to decrease by about 20% to 25% compared to our normal utilization. That will also have an impact on our sales.

And for the visibility on the third quarter, currently, we are discussing many projects will be started in Q3. But we do not really know what corona makes with the automotive industry in the next months. We have a — Germany made some loosening of measures, and so we will see how the rates are going on in the next weeks and months. And then we will see how is it going on.

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [24]

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To add to this part of the second question. So what is the expectation? Can we go up in Q3 at a normal level? Of course, this is dependent on the market development and also decision of the government that will be taken now in Q3. I will say, as Holger said at the beginning of the presentation in terms of order book and so on, so we could have — so we have the opportunity, let’s say, if project starts to run in a very good way in terms of revenue. It’s up but we are still dependent on decisions. If the project will start, I will say, in July, in August and September. And this will have, of course, a big impact on the Q3 numbers. If everything will start in July, so we will have a good Q3. If everything will be starting the curve of Q3, let’s say, August, September, then of course, Q3 will not — will be affected by that.

In any case, the message is we expect a recovery after Q2. That’s a clear expectation that we have at the moment. In which — so the shape of the curve or the ramp of the curve is, of course, not clear at the moment. But we will see in the upcoming weeks.

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Harald Christiaan Hendrikse, Morgan Stanley, Research Division – MD [25]

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Okay. And sorry, just by division, I’m assuming from what you’ve already told us that things are going to be a lot less bad at E/E. Or given the nature of the lockdowns, even E/E is not really able to avoid the deterioration of utilization in the second quarter.

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [26]

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I will say this. We have — E/E, of course, is becoming bigger and bigger in our portfolio. So in terms of business related to connectivity, others, IT embedded, demand is very sustained. And even in lockdown, we could work a lot because we have managed, let’s say, in March, where the majority of employees are actually working home office. And there was, let’s say, not a clear decline in the revenues because we were able to deliver added value to our customers.

The part of E/E which is depending on the testing and validation, everything which is linked to validation is again depending on the product. So if the customers will decide to reduce daily rates at the end of the year, so we will have also an impact on this kind of the business. If not, we should also run test and validation very well. And also test and validation is also the part of the business, which is more linked to cars compared to the others. That means that if the cars are not available at customer side, we have delays in delivery. That’s, let’s say, the fact we have experienced at the moment.

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Operator [27]

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The next question is from Gerhard Orgonas of Berenberg.

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Gerhard Orgonas, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [28]

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I’ve got 2 questions, please. The first one is if I look at your revenues by customer, it looks like maybe the Volkswagen Group is most hit. You were talking about the problems and fears in Spain. Is that mainly related to that? Or is that — does that reflect the overall environment where you see Volkswagen Group doing — performing a little bit weaker in terms of clients? And which ones are the ones that where you’re doing better still at the moment? Or you’re seeing more activity?

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [29]

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Okay. So in January, so we have — of course, we have suffered with Spain, with sales, with the shutdown. But we were suffering more in the Vehicle Engineering part. So in Spain, we have business all in Vehicle Engineering and Electrics/Electronics. The business in E/E in Spain is, I will say, nearly intact during the all of Q1. But we have also — we have some delays in the project in the Vehicle Engineering, and that impacted our revenues with the customer, I will say, number X that you have in our figures.

Overall, you see, let’s say, an increase of the market share of the E/E part of the business at every customer. That means that differentiation strategy of this segment is running on track. That means that all other customers are interested to our E/E portfolio, and that’s the reason why we are growing at almost all customers in this segment. The VE business is, of course, dependent on the number of cars, on the number of derivatives, as you can imagine from the numbers. But overall, I will say, we don’t see any customer at the moment where we have a complete decline of the revenues. We are — we have decided since 2 years, we are working very strongly with our customers overall, so our sales activities are constant everywhere. And this is the reason why we had a similar development of the revenues per segment at each customer.

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Gerhard Orgonas, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [30]

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Okay. And maybe the second question is just on the sort of study, I was surprised to see that they’re seeing the return of a private car ownership with the shared ownership. And what is that trend based on?

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [31]

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Can you repeat the question, please? The last part, excuse me.

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Gerhard Orgonas, Joh. Berenberg, Gossler & Co. KG, Research Division – Analyst [32]

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Yes. The study that you were citing at the beginning of your presentation that you see a return of private car ownership versus shared projects, what is that trend based on?

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [33]

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The trend is because of this, what we experienced at the moment. And the study I wanted to present to you is that this sharing economy with the classical U bar you have on the market, let’s say, at the moment, has an impact. And the people are becoming more and more reluctant, let’s say, to sharing a car. And there is a trend that we’re experiencing in the more use of private car. That means that the focus — we will probably have a revival in the owning a car at least for the upcoming months versus sharing a car, which was, let’s say, the trend that we have observed in the last months. This is — this also has an impact in our business because that means that probably some features, some connectivity features or software features that in the past were, let’s say, more focused on this sharing of the cars will be in the future also have an impact on the private cars. And we see that some software projects that were already beginning thought for shared models are now, let’s say, running on the classical cars that would be open. That was one of the point I tried to mention at the beginning when I say that the focus on innovation of the German automotive industry. We see that this innovation, this ESP of made in Germany will be the focus of our development projects in the upcoming months.

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Operator [34]

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(Operator Instructions) As there are no further questions, I hand back to the speakers.

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Cosimo De Carlo, EDAG Engineering Group AG – CEO & Member of Executive Board [35]

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Okay. So if there are no any other questions, I’d like to thank you all for participating to our call. And of course, stay safe. That’s the most important message at the moment. And looking forward to have further discussion with you, of course, during the road show but also for the presentation of the second quarter figures that will be at the end of August. Thank you very much, and I wish you a very good day.

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Operator [36]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.