Last week, we highlighted why the death knell isn’t necessarily sounding for companies whose business models revolve around the commercialisation of fossil fuels. But it may be a case of adapt or die as we make the much-vaunted transition towards a carbon-neutral future.
Many of the most successful companies are those that have demonstrated a remarkable capacity for innovation. Yet new ways of thinking are often bound up with adaptability. We were reminded of this attribute again this week, with the publication of a pre-close trading update from TI Fluid Systems (TIF), a manufacturer of automotive fluid storage, carrying and delivery systems – fuel and brake fluid lines, that sort of thing.
You wouldn’t imagine that trading conditions have been supportive over the past year, particularly as the group’s products are largely dependent on global light vehicle production. S&P Global predicts that worldwide sales dropped by around a fifth in 2020, compared with the previous year. A dramatic fall, no doubt, but it’s actually at the lower end of earlier range estimates, as vehicle inventory was rebuilt rapidly though the northern summer, despite the highly complex supply chain.
TI Fluid Systems said that its revenues are expected to align with the drop in light vehicle production volumes, but it has pared net debt back substantially from the previous year-end, coming in at €0.6bn (£0.53bn), against consensus of €0.74m. Management expects adjusted free cash flow to be well in advance of current estimates. This is largely down to “extensive cost reduction and cash preservation activities” undertaken through the year, which served to underpin a reinstated interim dividend of 6.74¢ a share, payable in February. The group now intends to return to its stated annual dividend policy and normal dividend schedule for the 2021 financial year.
Although results have certainly benefited from self-help initiatives, the global light vehicle market was not as dire as analysts had been predicting at the time of the first lockdown. More importantly, the group has embarked on volume production for several thermal fluid management products for Volkswagen AG (Xetra:VOW) electric vehicles (EV), along with coolant fluid carrying loops for eight different Hyundai Motor Co (KRX:005380) vehicle platforms across its EV range. Management believes that a succession of new business wins “demonstrate [the group’s) ability to meet the fluid handling and thermal management needs of all propulsion modes including electrification”.
On page 47 of this week’s issue, you can read how Ricardo (RCDO) has also been adapting its business model to meet the needs of evolving supply chains. Although we will see a reduction in demand for some conventional automotive components as the proportion of EVs on our roads increases, there will be increased opportunities in diverse areas ranging from powertrain assembly and e-mobility, although to thermal management and, eventually, autonomous driving.
Companies like Ricardo and TI Fluid Systems are clearly looking to get out ahead of the curve – and perhaps the disruption brought about by the pandemic will act as a spur for companies to realign their business models with emerging trends. It is thought that Biden administration policies will hasten the pace of vehicle electrification in the US, but if you needed any more convincing of where motoring policies are headed, just consider that Royal Dutch Shell (RDSB) has just bought Ubitricity, owner of the largest public charging network for EVs in the UK.
