Daldrup & Söhne realigns geothermal business to avoid cluster risk

Daldrup drilling rig on site in Geretsried, Germany (source: Daldrup & Söhne AG)
Alexander Richter 7 Jun 2019

Reporting on financial results for 2018, drilling technology and geothermal specialist Daldrup & Söhne AG announces a realignment of its business model, while keeping cash flows from power plants in focus.

In a release this week, German drilling technology and geothermal specialist Daldrup & Söhne AG reports total annual revenues of EUR 34.9 million for the total group in the fiscal year of 2018, compared to EUR 43 million in the previous year. At EUR 38.9 million, sales were significantly higher than in the previous year (EUR 24.8 million), as several deep geothermal wells were completed and accepted in Germany, Belgium and the Netherlands.

On the one hand, the 2018 financial year was characterised by a very good order situation in all four business areas and the technical resumption of operation of the Landau geothermal power plant for electricity production. On the other hand, a number of one-off effects, special circumstances with regard to drilling orders and lower than expected electricity production volumes at the geothermal power plants have pushed earnings well into the red. These included one-off valuation adjustments for orders in progress and drilling projects. In addition, there were unexpectedly high losses at the Geysir Group and one-off weather-related operational disruptions in drilling projects for third parties.

Due to the chain of these effects, a drilling operation in Belgium, for example, had to be outsourced, and there were conversions, drilling delays and downtime costs for drilling rigs and power plants with corresponding negative effects on the contribution margins. In particular, electricity production at the Taufkirchen power plant could not be implemented as planned in the year under review.

Thus, Daldrup reported negative earnings before interest, taxes, depreciation and amortization (EBITDA) of 12.4 million euros (EUR +4.7 million) for the Group. The negative earnings before interest and taxes (EBIT) amounted to EUR 16.3 million (EUR +1.1 million). The Daldrup Group has thus clearly missed its forecast target for the 2018 financial year with a total operating performance of around EUR 40 million and the targeted EBIT interval of 2% to 5% of total operating performance. The total consolidated net loss for the year amounts to EUR 18.5 million (+20k Euro). The loss per share (EPS) thus amounts to EUR 3.10 (EUR 0.00).

Management Board realigns company

As a consequence of the operational development, the Management Board proposed a realignment of the Group to the Supervisory Board. On the one hand, it includes a stronger concentration on the drilling services business. On the other hand, the dimensions of the project and capital risks in the power plant division are to be selected in such a way that they correspond to the medium-sized orientation of the Daldrup & Söhne Group. In order to avoid cluster risks, Daldrup & Söhne AG endeavours to be represented only as a minority shareholder in the participations for energy generation (project companies for power plants) and energy marketing (operating companies for power plants). Daldrup will maintain its fundamental strategic orientation of achieving continuous, calculable cash flows with investments in geothermal power plants and strengthening the earnings side under the premises mentioned.

The company has taken a significant step in this direction with its cooperation with Hamburg-based IKAV, represented by the Luxembourg fund IKAV Invest S.à r.l. In this context, the deconsolidation of the Geysir Group investment and the drastic reduction of liabilities in the consolidated balance sheet are expected to take place. A first binding term sheet to achieve the targets was signed last week as an intermediate step to the long-term cooperation (see ad hoc release dated 31 May 2019). Among other things, it provides for IKAV to acquire 49.9 percent of the shares in Geox GmbH, the operating company of the Landau geothermal power plant, and 48.9 percent of the shares in Geysir Europe GmbH. The closing of the transactions is scheduled for June 2019.

Daldrup will further expand its core business as a drilling service provider in the field of shallow and deep geothermal energy. In future, the focus will be on economically attractive overall geothermal projects – such as turnkey heating plants – and on high-margin water extraction projects, deep exploration drilling and EDS (Environment, Development & Services) projects.

Daldrup & Söhne AG’s drilling business has a pleasing order backlog and a very comfortable project pipeline. The Group’s order backlog at the end of May 2019 was around EUR 48 million. The order pipeline is also satisfactorily filled with future order volumes with a volume of EUR 105 million. The operating deficits incurred to this extent in fiscal year 2018 are no longer to be expected for financial  year 2019.

Structures are strengthened

The measures and re-organisations mentioned require the strengthening of the Group’s internal structures as well as the management and control mechanisms. The Executive Board will make personnel and organizational adjustments in the current fiscal year. This also includes the restructuring of the Executive Board. The finance department, including controlling, will be reassigned and strengthened. The Power Plants division has also been reorganised and new managing directors have taken up their duties. The previous Board member responsible for power plants and projects has since left the company.

Executive Board optimistic for fiscal 2019

In addition to the continuing high demand for the general drilling business from municipal authorities and private investors, all three large drilling rigs will be in operation in fiscal 2019. Two rigs are already in operation in southern Germany and Switzerland. The third rig will be drilling in the Netherlands in the third quarter of this year. As planned, all three drilling rigs will be staffed with sufficient specialist personnel. Based on the course of business in the first five months of the year, the Executive Board also estimates that the Group’s economic development will again be significantly more profitable overall in the 2019 financial year. For the current fiscal year, the Executive Board expects to achieve total Group revenues of around EUR 40 million and is aiming for a balanced EBIT result.

Source: Company release via