Interroll Holding AG (INRN.SW) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Interrol's Presentation of Half Year Results 2025 Conference Call and Live Webcast. I am [indiscernible], the Chorus Call operator. [Operator Instructions] and the conference is being recorded. [Operator Instructions] At this time, it's my pleasure to hand over to Markus Asch, CEO. Please go ahead.

Thank you very much for your introduction. Good morning, ladies and gentlemen. With me decide me is Heinz Hossli, our Group CEO. We welcome you on our half year results presentation 2025. And ladies and gentlemen, we are glad and honored that we have so many participants in this meeting. Let's quickly go through our today's agenda. I will start with the group overview and my reflections on the first 150 days, its priorities, its achievements, but also the areas where we are working on in order to gain additional momentum. After that, Heinz Hossli will present the financial performance. And at the end, we'll have a live Q&A session as already announced. You can raise your questions. For organizational purposes, we decided not to offer the chat to ask written questions. For those of you who have been in calls before, this is probably a very well-known slide for you, and I particularly would like to summarize and repeat the markets we are working on. Interroll is playing in a small niche segment, in a small segment of a rather huge markets, the material handling equipment manufacturing market. And we are working, we are playing, we are acting in the internal logistics solutions segment of this market. Even though the entire material handling equipment manufacturing market is more than CHF 200 billion, it is expected to grow even more with about a compound annual growth rate of 6%. Our markets -- our relevant market is about CHF 6 billion to CHF 8 billion worldwide and rather more and more getting dynamic, both in terms of development of the market as well as the technologies involved, and we have a relevant market share of about 8% to 11%. That's the area where we are focusing. And that's the area where we are developing our solutions towards. If we go to the next slide, and you have seen those in presentations before, there's basically no change in the first half of 2025. However, ladies and gentlemen, what I would like to focus on is one of those small information, our 16 main factories, and that represents our worldwide operations footprint. More to that later on during our presentation. This slide shows the 8 verticals or industries that we focus on, that we're working on. And you might ask yourself the question, where is e-commerce? And e-commerce for us, ladies and gentlemen, is not a vertical or industry why it touches so many difference of our verticals of our industries. For example, warehouse and distribution through your expressed parcel. But for those companies who more and more go into omnichannel, it also applies to fashion and retail. And more and more, it also goes into food. Those markets where we have special focus and attention, they are the ones who are highlighted in yellow. Let's go from a general market approach to our business model. And on one side, we see the markets, and I already introduced to you that the market is increasingly being more and more dynamic. We also see the material handling market as a relevant market with new entrants with focusing on consolidation. So on one side, we see a very active market. But let's now focus on how do we serve that market. And our business model, ladies and gentlemen, has the customer in the center. We focus on being close to the end customer and its main applications and providing them with what we can do well, providing them with proven state-of-the-art scalable technology with our product platforms. And that end user approach with getting close to the end-user applications help us to drive best possible solutions with the result that the end customer understands the value that we can provide to their solutions. And in best case, already specifies us when additional investments are happening. And on top of that, by focusing our end customers, we do understand their pain points in applications where we can improve our products but also where we can develop new possible solutions. Here, you can see our main product groups. It starts with the rollers, it moves on to drive, and it then goes on to conveyors and sorters and we have pelletizing. All of these product groups have one basic structure in place, and that's the platform strategy with modular, scalable and flexible components that are individually configured in order to provide best customer solutions. Service is also very essential to our business and it differs in relevance on rollers and drives compared to conveyors and pallet handling and service is included in each and every product group. Let's move on to innovation. At LogiMAT in April 2025, we have launched the MCP PLAY at the left-hand side. And in June, we received the highly respected IFOY Innovation Award for this groundbreaking innovation. What is so essential with the innovation? It serves two major pain points in our industry. One, it simplifies the installation and commissioning approach by substantially reducing complexity in the nature of projects that is always complex. So by driving standards, we reduce complexity. On the other side, it improves the operation for the end user by being more efficient and reducing energy efforts. On the right-hand side, you see the HPP product that we launched in 2024, high-performance conveyor platform with the multibelt switch, and this is gaining now step by step and more acceptance, and we will see that to develop further. I will now move on and share with you my reflections of my first almost 150 days. I would title it with strategic investments, global expansion and innovation that are the basis for sustainable growth. What do I mean this? First, the market we serve, as already introduced to you, is substantial. And what is even more important, through our value proposition, through our capabilities and solutions, we help the market to develop, to help the market to grow. Our value proposition of standardized configurable solutions serve the needs of the markets ideally very well. Now in order, and that's what you see as the second line, in order to regain growth, it is essential to increase our competence at our customers and their applications. We, therefore, have restructured our market competence, including key account management, our solutions, it's in vertical market management and there have extended our capabilities. These investments into people and competence is seen today in our P&L, but will produce the results in the next month to come. As mentioned before, our global sales and operations footprint is almost unique in the industry. And ladies and gentlemen, this gives us a competitive advantage and opens further potential for us in a political more and more uncertain environment. What is now essential that we localize this competence in the market to serve regional requirements. In order to gain and capture the potential that we see in those markets, in those regions. These investments, we have already decided immediately and they are already underway, and we will see -- we already see the first results, they are noticeable. On the innovation side, ladies and gentlemen, required extensions to our platforms are initiated and well underway. Further focus will be on innovation along the value chain of our customers. And that's very essential as we work in complex projects, innovation that is driving benefits into the value chain of our customers is far more valuable and it's far above products and solutions. It's value chain innovations. Our successful strategy in the past has been refined and decided which will be the basis for our priorities and sustainable long-term growth. On top of that, we have restructured the organizational setup. It is already up and running since first of July this year. And that will also serve as a basis for further market growth and regain momentum. Let's quickly talk about a few markets, relevant results that we have been able to secure and we are very thankful at this point of time to report to you that we have results of our market and our product initiatives. So let me take the first example. We have secured our first overseas orders from top global lithium ion battery manufacturer. And this -- taking -- let's pause a moment, taking this an example, this is happening today. Battery manufacturing technology is happening in China. So you have to succeed in China, not only for the Chinese market. But with the Chinese manufacturers worldwide as they dominate the battery manufacturing markets. So we see already orders not only in China, but we see orders in China also for the world for different battery manufacturing sites in the world. Second point is airports. Airports, as you all know, are back at their peaks. And we have secured there -- and we have shown you one possible or one example. We have secured already some wins and together with our global lifetime service, we are working on additional projects where we reinforced and combine our capabilities, both of products as well as service as well as refurbishment in order to prepare the airports for additional goals. Also, we see there is a clear rebound in e-commerce, starting but not limited to the Americas. And with our solutions in conveying and sorting. One side, we are well positioned and we work on additional solutions into that market but also to share the growth that already we see and get a momentum, get a share of the growth that is happening. This is a brief introduction of our major priorities, our major focus and some of the results that we were able to produce in the first few months and with this overview completed, I would like now to hand over to our group CFO, Heinz Hossli. He will go through us through the figures, which are the results of the described activities.

Thank you, Markus. Good morning, ladies and gentlemen. Also from my side, I'm happy to present you the results of the first 6 months '25. I would like to start with an overview -- to give you an overview before I go into the details. Starting with the order intake, 0.8% decrease in Swiss franc, but -- and this is really the but, we have gained in local currencies, 2.7%. So from a really negative turn to stagnation, we have now seen a slight growth, and the early indicators are also promising going forward that e-commerce will make a comeback. And this -- you can also read in the newspapers that the very big ones have announced already orders. It is not yet with us. This will take some time, but clearly, the signs are much more positive than they have been in the past. When we look into the regions, we have seen this, and we always mentioned this, we are most positive that the first growth will come from Americas in e-commerce. This is happening. This has started and we have seen some first projects in the first 6 months. This is also why the order intake of Americas has increased. In EMEA, we have basically a stable situation. And I'm also always talking now in Swiss franc. So in local currencies, it's clear the U.S. dollar had the strongest headwind. This is even more growth in local currency. EMEA also the euro had a downward trend. So stable in EMEA means in local currency, positive and we could also stabilize and now show a slight growth in China, where we lost in the last couple of years, but quite a lot. And this is now a positive sign out of China, but we have lost in other countries in APAC where the project business is -- has been slow for the first 6 months. When we look at sales, it's a positive sign even though it's basically stable like in the first 6 months of last year. But also here in local currency, it's a plus of 3.6%. This is quite a good achievement considering that we started the year with the lowest backlog in the last couple of years. Looking at the region, sales increased in EMEA and Asia Pacific, whereas the Americas, and this is basically also because of the lower intake in the second half year, '24 from the projects. The Americas has suffered a little bit, but they will catch up in the second half year. Coming to the EBIT, we see a decrease of 7.7% to CHF 27.6 million. If you look at the difference in Swiss franc, last year, CHF 29.7 million, with basically the same sales. You can see that we have a higher cost base, and this is mainly driven by higher R&D costs and marketing costs. These are investments for the future, as also already outlined by Markus. Overall, we clearly commit to keep our strong cost discipline up and this is also what we see. There is really only two areas where we have seen major change, and this is really an investment into the future. The highlight of the first 6 months for me is clearly the cash flow. The operating cash flow increased by 34.6% to CHF 21.8 million and this is mainly coming from optimizing net working capital. Now a little bit more in detail, the order intake at CHF 284.1 million. As mentioned in local currency, a plus of 2.7%. If we look into the 4 product groups, we see roles growing 5.1%, drives minus 8.4%. Here, I would like to make a remark that in the period of last year, we have been awarded with a very big onetime order in the Americas, which has been around CHF 5 million. So this explains why this is minus 8.4% this year. Conveyors and Sorters, this is coming from the e-commerce, first signs of a rebound, plus 8.1%, mainly coming from the Americas. Pallet handling, this is the very cyclical product group, which we see up and down, and you will see on the next slide in the positive sign, but in the order intake, minus 19.1%. And at the end, the book-to-bill ratio, 1.15% basically at the same level of last year where we have been 1.16%. Looking now into the sales, we see a slightly different picture. You can see that the [ rollers ] plus 4.1%, drives only 3.1% negative. Then conveyors and sorters, here, you see the big difference where we have seen quite a good growth in the order intake. The sales still lag behind with a minus 7.3%. As mentioned before, this is mainly driven by the Americas region. On pallet handling, very negative in the order intake, but with a plus 38% very positive in the sales. Nevertheless, the Pallet handling doesn't make a big difference on the total sales. Now the sales by region. And here, we clearly see the development, EMEA and Asia Pacific with the growth in Americas, it declined compared to the previous year, as mentioned before, the reasons are clear by the decline in Americas is there. The order intake in the second half year '24 from the project business was low, and this affects the invoice sales in the first 6 months of this year. This will, as mentioned, change in the second half year. When we look at the split by region, we see that EMEA has slightly increased to 62% from 60% last year; Americas, 28% loss 3 basis points compared to last year; and Asia Pacific gained 1 basis point to last year. So there is not a big movement by end of the year. As always, Americas will catch up as they have a lot of project business, and this will be on the cost of EMEA. And hopefully, APAC will remain stable or even show an additional growth. Looking at the EBIT, minus 7.7%. This looks quite a bit. But in absolute amount, I think this is okay as this is an investment into the future. As mentioned, we have higher R&D costs. The R&D cost, you will not find directly in the half year report as this consists of external costs and a lot of personnel costs. And then we have also invested a little bit more in marketing. We had big shows at LogiMAT and the big show in the U.S. And we have also with the MCP PLAY, a lot of equipment to present on the shows, which has been booked into the cost. As we do not capitalize anything on R&D, everything is expensed immediately, and this is why you see the impact in the P&L. The strong cost discipline. This is where we are fully committed also to continue in the future. This has been a good and basic pillar of the profitability and to protect the profitability even in a downturn. And even though the result looks compared to last year, not really good despite the investments in R&D and marketing. But if you compare this with '23, it's basically the same level. Amortization and depreciation in absolute terms remained unchanged. This had an impact on the EBIT in percentage of sales now with 11.1%, in the previous year it was 12.1%. Looking at the results, there is not much to say. We have a negative financing result coming from FX currency losses. Due to the big natural hedge, we have, the currency losses are really minimal, but nevertheless, it is negative slightly negative. And in the previous year, it was neutral. The interest from the cash we invest is also lower as the interest rates have come down. And the tax rate is slightly lower than last year. This results in a decline of 11.3% to CHF 21.2 million or in percentage of sales, 8.6% versus previous year, 9.7%. Free cash flow, CHF 17.1 million, the operating cash flow of CHF 21.8 million, in percentage of sales, 8.8%. So this is an increase compared to last year. And as mentioned already in the first introduction with the overview, this is mainly coming from the optimization of net working capital. The free cash flow is the result of lower investments. The investments in this first 6 months with CHF 7.2 million has been even lower than last year with CHF 8.5 million. So the combination of an increased operating cash flow with less investments shows the free cash flow increase and in percentage, the increase is 54%. So this is quite considerable. And to me, the cash flow is the highlight. It's also worth to mention that even in a difficult market environment, Interroll always can generate free cash flow. Now I come to this long-term value creation chart, where you see really a long-term return on equity, 9.1%; return on net assets, 14.9%. What I need to mention is in the first 6 months, there is always a negative effect due to seasonality, which is shown in the figures. The return on equity it's quite difficult to reverse because this is highly related also to the equity ratio. We have now almost 80% equity ratio, which is very high return on net assets, this automatically will reverse and go into the direction where we have been between the years '14 to '19, we expect slight increases when we start to see a growth of the sales because the assets we have, the assets are more enough to produce a much higher volume. So we have capacity to grow strongly with current capacities, and this will then increase the return on net assets over the long term, again. Now I come already to the outlook. As mentioned, the E-commerce sector is showing early signs of a rebound, big integrators have already seen firm orders and this will take some time, but with a time lag of 6 to 9 months, we should also see this in our order intake. For now, what we can say is the signs of market stabilization has emerged at least regionally with growing demand for large orders in the project business. The feedback from our customers and end users is increasingly positive in the warehouse and distribution segment, also in courier, express and parcels, mainly driven by the rebound of e-commerce. Also in the airport business, we expect a sustainable growth going forward. Nevertheless, we continue to operate in a challenging macroeconomic environment with geopolitical tensions, which could impact business performance. However, the long-term trend of automation, driven by the need for productivity gains and labor shortage are clearly signs that increasing demand for our solutions, our commitment to quality, speed and simplicity remains our building block, and we also will put the customer into the center more than in the past, as mentioned also by Markus. This is also the investment into sales, and we will continue to shape our culture. Before I come to the end, I would like to highlight that we have now in our Investor Relations web page, more online content. The link is shown here on the bottom, and please have a look at it, and we always are open for feedback and for suggestions for improvements. Please just contact investor relations at interroll.com, if you have something which we can improve on the Investor Relations website. With this, I'm at the end of my part, and we will start the Q&A session.

The first question comes from the line of Constantin Hesse from Jefferies.

Three questions, please. Number one, long-term question in terms of the restructuring of the organization that you're going to regain momentum. If you can maybe share a bit more color on what you've done there, what your targets are, also maybe a little bit of a word on competitive environment? Second question, order intake, if -- obviously, we saw KION's results yesterday, they were also quite impressive in terms of the warehouse automation side of things. And they've also been mentioning e-comm, though they did say it was obviously not a sustainable growth driver but they do expect an improvement in the second half, too. So if we think about order momentum for you, how should we think about this potential recovery curve. Do you expect book-to-bill to remain above 1 in the second half? Maybe just some color here would be interesting. And lastly, on free cash flow for the second half, if we could just get some color here on working capital movements and CapEx.

Thank you very much, Mr. Hesse. I will answer the first question on structuring and regaining momentum and Heinz Hossli will answer the second and the third. Let's quickly look at the first one. So what have we done -- I indicated to you that for us, an excellent basis and operations footprint. Now one is essential that we focus ourselves also on the relevant markets with closeness to the customers and the market that basically we are rebuilding the company from a more European-centric to a customer-centric organization. What does that mean? The relevance of Asia and especially China, the relevance of America has to be equally valued in the organization as the relevance of Europe. What does that specifically mean? Our structure, our decision-making progress in Asia is equally now represented in the Board. We have established also product management and engineering already in China, and we are building that, why? And let me give you an example, and I mentioned that before, like the electric vehicle industry. It's not about China, it's about the world. so relevant -- we have to be the relevant customers are, not only for the domestic market but for the relevance in the world. So we have restructured that and also the whole organization has been main leaner and much faster to decide. That's a brief answer for your first question, [ Hesse ].

Then I take the second question regarding the order intake and what you mentioned regarding the publication of KION. I think KION also made very clear where this is coming from. This is coming from e-commerce. And that this is also where we say we see light at the end of the tunnel, much more I cannot say to this, what I stated already before. When such a big integrator gets a such big project takes 9 -- 6 to 9 months [indiscernible] in an order intake, it could lead even up to 1 year. The projects they got there massive. It is clear with the indications who is the end customers or the end customer and are also positive to see something if it is still end of this year or early next year, that's too early to say. Regarding your third question, the cash flow, what I can say is free cash flow will also increase in second half year. We might invest into CapEx a little bit more in the first 6 months, our infrastructure, but not really much more. And overall, we will continue also to generate cash flow in the second half year, but we cannot give you a number. We don't have a forecast for this.

Can I just follow up on the order intake. So obviously, order on book-to-bill was north of 1 in the first half because orders were clearly relatively low in the second half of last year, you had a lower backlog. So the improved order intake clearly had this impact. But looking at the momentum into the second half, do you expect orders to accelerate into the second half? How should we think about book-to-bill as we go into the second half? Just to kind of like frame the story in terms of the recovery curve here.

Yes. What we expect is that the business on the product side will continue more or less in a similar fashion as in the first 6 months and for the project, as mentioned, it might be very possible that we get an increase, but we see early order intake in the Q4, but we cannot guarantee this, it can also be that it's Q1 but that we expect the increase in orders in the next 12 months is clear.

The next question comes from the line of Sebastian Vogel from UBS.

I also got three questions. The first one is a bit of a follow-up question. As you said, right, the reference to the 6 to 9 months until you will see these orders on your side in your order book as well. And then you had made the reference to the 12 months for the larger ones paying. Again, coming back to 6 to 9 months, meaning that you also expect some smaller products or some smaller project related to orders coming from e-commerce over there? Or is it just the big ones that anyway come in the next 12 months? That would be the first question. The second one is, if you can remind us a little bit if you have a ballpark figure what's the overall e-commerce exposure on a group revenue basis, that would be interesting? And as well, the same applies to airport exposure. If you can see some light over there regarding revenue exposure, that would be great.

Sorry, can you repeat the last one?

Airport exposure on the group.

Yes. Share of revenues.

I'm quickly answering the first one. So you're perfectly right in your valuation. So we are already in discussion also with those relevant players and we see momentum on the smaller projects that will happen this year in order intake. The bigger ones, as mentioned by Heinz Hossli, they will take the time until they are structured with the big system integrators.

Your second question regarding the e-commerce share, this is roughly 30% to 40% which is related to e-commerce. And as mentioned before, there is also a portion of fashion and food included there. It's not only courier, express and parcel.

And airport.

And on the airport, the share is between 5% and 10% of revenue.

We now have a question from the line of Walter Bamert from [indiscernible].

Good morning, everybody. This is Walter Bamert from Zürcher Kantonalbank. My first question relates to the growth initiatives, is it correct that those costs in the first half about 1 percentage point EBIT margin? And do you expect that to phase out over time or are you stepping up those initiatives?

So if -- I didn't understand you 100%. Clearly, your question was the EBIT effect that we have today. Will that remain or will that phase out there is a clear task for us that this will -- this is right now immediate investments that we already see some of the results in the next 6 to 12 months. And this is, of course, will phase out. as we are very strong on our cost side as soon as we gain momentum, our task is to invest what we can afford and not to jeopardize the EBIT.

Sorry, maybe in addition to what Markus Asch said, now when we go back into a growth mode, we have a high leverage, and we will -- we still can invest and you will still see an increase in profitability due to the high leverage.

But that's correct about 1 percentage point in the first half?

That's correct.

Okay. And then regarding the e-commerce orders when a system integrator gets CHF 1 billion in orders. And assuming you would have 100% market share on that those orders, what would be your revenues?

This we cannot give you an answer. This depends on the scope of the project. This depends...

On the technology and the structure yet [indiscernible] this is impossible to make a reference if ever.

So I have to refer to the 10% market share you have in global material handling then?

Yes.

And in July, you didn't see that much of order activity?