Bucher Industries AG (BUCN.SW) Earnings Call Transcript & Summary

Good afternoon. I guess afternoon is appropriate word for most of you. Ladies and gentlemen, I'd like to welcome you to our half year results presentation that we'll hold here together with my CFO, Manuela Suter. I would like to welcome you to that presentation. We have a lot of helpers in the background that [indiscernible] taking care of all the video cuts and so on. And then we have Saskia sitting here as well. Saskia which from Group Communication just as well as [ Jen Vidacare ] from Investor Relations. I will start off with giving some general comments and also by division how the first half year went and then afterwards, Manuela Suter will present some more presentations on the financials. Some organizational aspects, right? At the beginning, we did download the presentation or upload the half year report this morning at 6:00. It is available on our website we will record this video conference right up to the Q&A. So now it's being recorded. It will be available tomorrow on the website as well so that you can track back once more any of our statements. You all are on mute that we can steer from here. I would like to ask you to remain that way. It's always -- otherwise disturbing we have some background noises. Of course, for the Q&A session, then we will unmute you as needed. So if I want to summarize the first 6 months of this year. I guess these would be the right words and now we're checking -- and I will have to ask where we are. Yes, first half year, it was a mixed picture. Obviously, some markets of Bucher Industries did stabilize or even recover at least on the demand side, but there was a political uncertainty and that did have an effect on the recovery. It slowed it down somewhat order intake. Nevertheless, was higher in the -- compared to the previous year's period. Sales, although did reflect the lower order book that we had at the beginning of the year and remained below first half year of 2024 in comparison. Finally, the operating profit margin was reflecting on the lower volumes on one side but benefited from the sales that we made from a property here in Switzerland. So the group's profit overall remained at the level of last year. We have slightly adjusted our outlook for 2025 due to some uncertainties surrounding rates [indiscernible] tariffs. Nevertheless, I think Bucher Industries is well set up for the future. Our equity ratio remained very stable at 67%. We have a high net cash position that we're using partially for the share buyback when will give you some more details for that. And also on the organization side, we have an internal successor for loan municipal we're happy about that as well. I'll come to some more specific numbers now. And bear in mind that the numbers we show here are always corrected for currency exchange rates and for acquisitions. So they're like-for-like numbers. Order intake was higher than the previous year's period. Kuhn Group benefited from a greater willingness of the farmers to invest into new machinery, especially in Europe, and the order intake grew significantly there. Bucher Hydraulics also posted a growth. The demand for glass forming machines however, fell substantially. So overall, the group's order intake increased by 6.4%. The group sales continued to decline compared to the prior year period decreased by 9%. So we still have to gain momentum there. Only Bucher municipal continued to grow slightly. The group increased profitability, which reached in this first 6 months, 11.6%. Weighing on profitability were lower capacity utilizations, but also some salary inflation that we had passed on from last year. That had more negative impact. We profited from lower material costs and from some cost-saving measures that we have implemented last year and this year as well. The group's operating profit was boosted, as I have mentioned, by CHF 43 million coming from the sale of a nonoperational property here in Niederweningen in Switzerland. So -- and that had an impact on the EBIT margin by 2.8 percentage points for the half year, it will be 1.4 at the end of the year. The number of employees was adjusted accordingly to the lower use of capacity, particularly in Germany and in the United States and decreased by 5.5%. Where we try to maintain the momentum was in R&D. We reduced the absolute numbers just slightly. And in percentage, it went up. So we are at 4.3%. Now I always believe between 4% and 5% is a good ratio actually. We launched a new machine. One you can see here is basically a mechanical weeder. That's definitely a machine that is in line with sustainable agricultural practices, where it's really purely mechanical, getting the weeds out of the ground between the rows. We also, of course, continue to invest no more quite at the level of last year, but still had 3.4% of our sales invested in CapEx. I would want to transition to the results of the divisions. I'll start off with Kuhn Group as usual, and there we always look at the commodity prices as an important factor for the revenue and expectations. On the left side, you can see the prices for the grain and oilseeds. And on the right side, you will see the dairy the milk price, actually. And the crop prices overall showed a slight improvement, although at a low level. Main driver is still high expected yields, which keeps the pressure on the prices. due to actually very favorable crop conditions this year. Basically, in all regions, we have a very strong growing situation. On the right-hand side, you can see the milk price that remained at a high or definitely higher than average level or even very high level, we look at the European milk prices. We didn't show the meat prices here, but they also remain at a very high level. So in combination with lower fee cost, the situation for dairy farmers as well as livestock farmers is actually very favorable at the moment. So Kuhn Group did profit somewhat from that situation, farmers' willingness to invest did improve in the first half year of 2025 interest rates and production costs did remain high, but the weather conditions are very positive, very favorable, especially here in Europe. And also the crop yields in Brazil were higher than in previous years. So the demand for machinery started increasing again also because dealer inventories were now reduced in many regions. Kuhn Group's order intake rose significantly by 33%. There was a dairy and farming and livestock segments that helped particularly, but also the higher commodity prices were in the background of that. In the United States, however, the sentiment among farmers was impacted by the uncertainty concerning trade and economic policies and also subsidy programs. Kuhn Group sales fell by 10% compared to the prior year period. The uncertainty in the U.S. was a major reason for the decline. Sales in Europe fell slightly. Brazil returned to growth in local currency, but of course, with the negative exchange rates that get compensated. So despite the lower volumes, the operating profit margin remained at the prior year's level and reached almost 10%. This was particularly supported by lower material costs. I move over to Bucher Municipal, which had very pleasing results. They experienced a high demand and a stable market situation. Order intake increased slightly by 1% compared with the strong period that we had a year ago. Compact sweepers kicked in again, that was very positive. Also electrified machines increased again, that was helpful sewer cleaning vehicles. We had more demand for that as well. A bit weaker demand we saw with truck-mounted sweepers, with winter equipment, but also with refuse collection vehicles that is in Australia. Sales of Bucher Municipal increased by 3% Growth was attributed to different markets, for example, Spain or Denmark, the Americas, but also Asia grew, among others. And it was especially related now to sewer cleaning and the winter maintenance equipment, the sales that is. The division benefited from the high capacity utilization and continued with efficiency measures and the operating profit margin improved to 9.1%. I mentioned that we found a solution for the succession planning that was due for Bucher Municipal. And we have selected Martin Starkey as a new division President as of beginning 2026. I'm very pleased he is an internal successor. He's been running the truck-mounted sweeper business in the U.K. and then we'll move over to Switzerland at the end of the year to come into his new role. Aurelio Lemos will support him then in the transition phase. Aurelio has been with us for 23 years very successfully, and we're very happy with that internal solution. I move on to Bucher Hydraulics. Demand in the hydraulic markets rose overall in the first half year of 2025, and the order intake at Bucher Hydraulics exceeded the figure for the prior year period. by 5%, but the uncertainties surrounding global trade tariffs were noticeable among divisions' customers, especially in the second quarter. Demand for hydraulic solutions overall for construction machinery, agricultural machinery as well hydraulic -- stationary hydraulics as well as mobile electric drive technology did increase where we were a bit more challenged was in the segment of material handling solutions. And by the way, that's a segment that is driven mainly out of the United States. And so if we look at the regions, obviously, the United States didn't support the growth, but it came mainly from Europe, China and India. Hydraulics is moving into a new assembly site in Malaysia. That is one of the reactions, obviously, to the tariffs, but also to be a bit closer to the customers that we have in Southeast Asia. The division sales fell by 10%, and that's not even including an acquisition that we did in Finland, company Hitman, they would make about 2% to 3% of our sales and order intake if they were included. We saw the high uncertainty weigh in the second quarter of this year, especially in the United States and in China. Sales declined in all major regions and segments in Q2 of this year. The lower capacity utilization, coupled with acquisitions and integration costs had a negative impact on the operating profit margin, which fell to a single-digit number, 9.7% and was therefore below expectations. Cost-saving measures were consistently continued. And then I move on to another challenged division that is Bucher MR Glass. The customer of Bucher MR Glass continued to be cautious with investments in the first half of 2025. Order intake fell by 26% and was, therefore, significantly below prior year level. In particular, order for glass forming machines, but also for inspection machinery came down. The division benefited from the large number of installed glass forming machines and its high share of spare parts that go into these machines that offered somewhat stability to the new machine business. Sales fell accordingly by 21% compared to the prior year period. The operating profit margin also fell from very high levels down to 13.4%. Production planning was adjusted, and we also have to adjust accordingly our capacities in the sites of Bucher MR Glass Bucher Specials, as usual is a mixed picture. I think it has never been different. In the past couple of years, the overall division order intake fell slightly by 1%, but we had some strong supporters there. But if I go down the list, then we have Bucher Vaslin, which produces the presses for grapes. They didn't see a strong demand. A matter of fact, that came down. The willingness of line producers to invest at the moment is very restrained. By contrast, we have Bucher Unipektin that makes presses for apple juice for orange those but also [ beer ] but also beer filtering equipment. And they recovered or they remained at the high level and then the 1 that recovered was Bucher Landtechnik was a slight increase over last year's order intake. And then finally, we have basically an internal supplier Bucher Automation, delivering controls to divisions like Kuhn Group, look like an art class and also Bucher Hydraulics and they obviously felt the weak momentum of their internal customers and had to post a decline. Sales fell by 8% altogether for Bucher Specials, only Bucher Unipektin was able to exceed the levels of last year. The lower sales level and additional costs associated with further efficiency measures and reorganizations weighted on the disappointing operating profit margin of barely 1%. Bucher Unipektin further expanded its beer processing capabilities. It was a small acquisition that we made in Germany of the company, Bane game behalf in early June. I'm going to now hand over to Manuela to give more details on the financials.

Thank you, Jacques. So starting from [ Epic ] because already been discussed by Jacques. Let's look at the below the line item of the waterfall chart. Net financial result of 6 million was driven by interest income and the result of short-term investment as well as less finance cost due to the bond repayment end of 2024. Income taxes amounted to 40 million, corresponding to a tax rate of 22%, quite in the range of our midterm guidance of 21% up to 23%. And stable profit for the year and earnings per share reflected the lower performance or operating performance as well as the profit from sale of property. The ongoing reduction in inventories are clearly a positive impact on the net working capital with a significant reduction or decline However, in percentage of sales still on a high level with above 24%, and it will remain a key focus area for the next month. [indiscernible] reflected continued capital expenditure to ensure our long-term organic growth. And we run close to 19%, we are still well above of our cost of capital of around 8%, but below the target over the cycle of 20%. So we are working on both improving profitability and optimizing capital efficiency to get back to the above 20% target. And a clear highlight of the first half year a strong operating free cash flow close to CHF 100 million. This thanks to a seasonally below-average increase in net working capital. So at that time of the year, it's normal to have a buildup of net working capital from a seasonal perspective here on the waterfall chart with 60 million. However, it's clearly below the average over the last couple of years. Remember that we expect for the full year, around 100 million net working capital release for 2025. The operating free cash flow would also have been positive without a gain from the sale of property makes roughly CHF 50 million a clear exception the last time that we were positive at the time of the year was 2010 right after the financial crisis. acquisition mainly reflected the acquisition for Bucher Hydraulics, a well-established supplier of hydraulic system in the Scandinavian market. The dividend and specialty shares of 140 million reflects the dividend payout as well as the payout for the share buyback was around 30 million. And remember that the plan to buy back up to 40 410,000 registered shares or 4% of the share capital over the next 2 years. Thanks to a strong free cash flow over the last couple of months. We reported a strong net cash position of more than 300 million. and an equity ratio close to 70%. By the end of the year, we expect approximately 450 million of net cash also depending a bit on the speed of the share buyback program. So before handing back to Jacques, who will walk us through the outlook for 2025. Let me quickly summarize the priorities from a financial perspective for the next months. Managing costs at business units with low capacity utilization, continue to drive the ongoing reduction in inventory, so bringing net working capital to a healthier level. But also preparing for the sector that we are seeing in some of the markets. And with that, I would like to hand over to Jacques.

Thank you, and we would move on to the outlook for the whole year. We start off with on there. We assume that the reduction of the above-average inventories in the dealer network is continuing in a positive direction is progressing. And based on that assumption, we believe that Kuhn can expect stable sales always on a comparable basis and an operating profit margin in the region of last year's level 2024. And we continue to do [ her ] municipal. They expect the demand to fall slightly from a high level, but they believe that they will have stable sales at the end of the year, again, compared with last year. But the operating profit margin that should increase further compared to prior years also based on the programs that they are driving. Now we come to a division where we had to make slight adjustments due to the uncertainty surrounding global trade tariffs, mainly and then the uncertainties that come from the customers for Bucher Hydraulics expects a delayed recovery of the demand and anticipates a slight decline in sales on a comparable basis and a slightly lower operating profit margin for the year. So we adapted the outlook [indiscernible]. Bucher MR class the second division that is challenged. They anticipate significantly lower sales on a comparable basis compared with high level of the prior year. And accordingly, the operating profit margin is expected to be significantly lower as well. And finally, Booker Specials, there, we anticipate a slight fall in sales on a comparable basis. However, the operating profit margin is likely to rise due to the efficiency measures that we have taken. Also here, we adopted the outlook according to the new situation. So what does it mean for the group overall? There we are with a strategic approach for local production close to its customer base. Basically, we are set up in a good position, but nevertheless, we did have to take into account that the uncertainties have increased in the past quarter, specifically. And the demand for capital goods is less euphoric maybe than we had anticipated at the first half. Bucher Industries, therefore now expect slightly lower sales for 2025, again, on a comparable basis. And the group operating profit accordingly is going to be slightly impaired. Now not calculating the 43 million of profit that we are getting from the property sales here in Switzerland. I believe we have covered the most important points for this first half year, and we would move on now to our Q&A session. At that moment, we will stop the recording. And there were really two hands up for quite a while out of excitement or anticipation or just want to be first. Walter Bamert, what's your question.

I just wanted to be sure that I can unmute myself. So I try it early. The first question is regarding the U.S. agriculture business. I think your comments were more hesitant than I expected. After they got a big down payment for the damages that happened in the recent years there, then I see the surveys, which spiked and are now normalizing at a higher level. And also they introduced the farm bill. So do you really see that the U.S. agriculture business is stagnating? Did that change in the recent months? Do you see volatility there? Do you want to share with us even regional divisional figures, even that this is not typically the case, what happens in the U.S. in agri?

Who knows? But no, I think there's one element we have to start off with. The U.S. agricultural business last year was not as bad as we added, for example, in Europe. So we have a somewhat a base effect that we started off with in the first half year of 2024. Yes, you mentioned promised payments. The most important bill is the one that they accepted in December of last year 2024, which was a $40 billion support. So far, they have only seen $10 billion of it. So it hasn't come through. So we always have to be careful what is promised and then how long does it take and when will it really reach the farmer at the end. And the last element, I think, that is important is that the dealer stocks in the United States are still a bit higher. So we still have to burn off more dealer stocks there than we do in Europe. So these are the key reasons why we're still a bit hesitant with the second half. I believe it will come, but maybe not quite as quick as we had hoped or anticipated.

But you didn't see trade tariff-related volatility, prebuying and catching up?

Not for the moment. Or I mean, there could be another scenario that now they're anticipating price increases and they certainly would go on [ bifentically ], we don't see that. What we see is that China is moving their demand from the United States back to Brazil. Positive for Brazil, but not necessarily for the United States on the agricultural level. Now at the moment, we still see some reluctancy especially on the crop production side. And that has to do with the fact that they see that the commodity prices are still on the low side and their profitability is not as high.

To you -- not only regarding Bucher but in general, 15% tariffs on European exports, 0 tariffs on U.S. exports to Europe. Do you see a way for agricultural products coming into Europe, changing completely the structure here? Or do you expect, in general, that a lot of these export to the U.S. will not happen any longer.

Now I cannot predict all. I mean, first of all, the machinery in the United States and Europe does look different. And you probably could even compare it to cars. They just like it bigger and it's more sturdier in the U.S. So I don't see that the machinery now suddenly is just going to take away market shares here in Europe substantially. The question is more is how is it going to happen the other way around. For us, it's not so much a problem because clearly, the bigger part of the products that we sell in the United States is produced there. it's only a smaller part that we import from France to the United States. So I don't see major shifts. The question for us will be from the imported products, can we now raise the prices on them and will still be competitive. There's something else going on in the United States. We have to bear in mind is that no material prices are starting to increase again. Steel prices are coming up that we see. So we have to start anticipating inflation again, just like we had to do it in 2022. So there is a price increase that is imminent. Of course, when there is a slow demand, price increases are a lot more difficult to implement. Then maybe there will be a delay of a couple of months and then we can start raising prices as the demand starts kicking in again.

Okay. Yes. Then the second question is regarding the Hydraulics business, trying to understand what's going on there. So the culprit is material handling, which I understand is mainly construction machinery in the U.S.?

No, not really. Actually, it's a lot used for logistical functions, for example, dock levelers within distribution centers or the back -- the levels that we have on the back of a truck, the tailgates. These are driven hydraulically. We have, I don't know, 80% or 90% market share of these in the United States. And these are all products that we assemble in the United States with some electric motors coming from China. And obviously, all our customers knew now that there was a big shift in tariffs, which were prohibited at that moment, that they stopped ordering in Q2, and they were living off their own stock just to see what's going to happen with the tariffs. Now it has normalized somewhat with a 50%, but now we have to find a new level of demand. And at the same time, we are finding different ways of dealing with the situation. As I mentioned, we're opening up in Malaysia will be most likely also going into Mexico, just to kind of mix and match the components out of China in such a fashion that it doesn't get hit by the high tariffs.

So you would say the let's say, the temporary weaker performance in the second quarter of hydraulic was more related to homemade issues. I mean, company-specific issues, also with the restructuring cost you mentioned, and not really the trend of market demand, the underlying trend.

No. Well, no, I would just call it the short-term markets. adjustment. The market demand short term kind of stopped because they were trying to find out what the new situation is going to be like and what the final pricing will be. But the demand should come back will kick back and compensate for what we lost in Q2, I don't know that I can tell you.

Okay. And then a small last question. You sold a lot of real estate. Is there more nonoperating real estate to be sold in the coming years?

I'll leave that to my chief of real estate.

I would say it's the biggest part with this CHF 50 million proceeds. It's quite a material transaction, of course, here and there, we always have some renovations, maintenance or to sell part of it, but not to this magnitude clearly not. It's not an exception.

It happens that we buy something new, open up something new and then we sell the old property that we had for operations, but that's more a normal transaction.

There are still some portion of selling also in Switzerland related to the property that we just sold, but clearly not in this magnitude, not material from a group point of view.