Palfinger AG (PAL) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the PALFINGER AG conference call on the private placement of treasury shares. I'm Josef, the Chorus Call operator. [Operator Instructions] This conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Andreas Klauser, CEO of PALFINGER. Please go ahead.

Yes. Good morning, everybody here. I think it's important today sharing some further information and clarification on our ABB process. I think there was maybe some misunderstanding, confusion and want to further clarify. The focus is clear, is here to manage and finance and support our growth on the service and parts business around the globe, especially in North America and India and as well the upcoming potential of defense business, which is right now further knocking on our door. And to get some further clarity, I'm handing over to Felix Strohbichler, our CFO.

Good morning, ladies and gentlemen. So perhaps to recall again how we acquired the treasury shares. We got the authorization in the AGM of 2021 to acquire treasury... [Technical Difficulty]

Ladies and gentlemen, the connection with the speaker has been lost. The conference will proceed in a second. Ladies and gentlemen, the connection with the speaker has been reestablished. You may now proceed.

Yes. And I don't know how far you could hear what I said. I think it's important to get further clarification on our ABB process. I think there was some confusion and misunderstanding, and Felix will here provide -- Felix Strohbichler, our CFO, will provide further information. The reason why we're doing this is to further grow our service and parts business here around the globe, especially in North America and India and as well to support the growth of our defense business, which shows a great opportunity to the PALFINGER. Again, handing over here to Felix.

Thank you, Andreas. Good morning, ladies and gentlemen. I would like to recall to you how we actually acquired the treasury shares. We got the authorization in the AGM of 2021 to acquire treasury shares. On this basis, we terminated the cross holding with SANY in 2022 and acquired treasury shares in July 2022. We are talking about 2,826,516 shares actually. And in terms of accounting value, the share price was EUR 35.20. This is more a bookkeeping value. This was not the purchase price paid. But at this point of time, when we actually exchange shares of SANY against shares of PALFINGER, the value of the PALFINGER -- share price of PALFINGER shares was EUR 35.20. So in total, the equity was reduced by EUR 99,493,363.20. The 2.8 million shares reflect about 7.52% of the share capital of PALFINGER AG and to date, we still have all of those treasury shares on hand. A few days ago on the 1st of April, we made an announcement that we are now starting to evaluate a private placement or an accelerated book building process regarding up to 2.8 million treasury shares. What we plan to do with the proceeds from a potential transaction has already been mentioned by Andreas Klauser. Let me just repeat that we clearly have a lot of growth potential, especially by further strengthening our service structures in EMEA and in North America. We have a lot of growth opportunities, especially in North America, also in Asia, where we are going to build an assembly factory, and we have several projects on hand in the defense business we want to invest in. There are further advantages of potential accelerated book building process. We can increase the liquidity of the shares, increase the free float, which will also increase our chance to get into the ATX, which again could have a positive impact on the share price development. And of course, it would also improve our balance sheet KPIs. Our target is to implement the accelerated book building within 2025. So it was an early announcement. We want to be flexible. So this does not mean at all that we are going to do this ABB process within the next days or weeks. So whether we do it and to which extent is clearly depending on the capital markets environment, what is the share price development of the share of PALFINGER AG and also how big is the interest of potential investors in that process. At the moment, we clearly see the share price is much too low. We believe that the share valuation of PALFINGER should be substantially higher than what we see at the moment. In our AGM of today, we will have a topic on the agenda to extend the authorization of the Executive Board to sell the treasury shares to acquire treasury shares, but mainly to sell the treasury shares. So this is the basis also for potential accelerated book building process. And the next steps technically will be that we will publish a report of the Executive Board within the next few weeks, within April in any case, then there is a need to wait at least for 2 weeks, which does not mean that the transaction will start within 2 weeks, it will be within 2025, if it will happen in 2025, but we just decided to start the process right now to increase the flexibility, but the key topic is that we have a lot of potential to grow, and we want to make sure that we can really benefit from those potential in order to really have also a possibility to invest more than we actually had in our mind. This would be a perfect tool for us.

Thank you very much, Felix. I think this quite well describes what we are planning here. Maybe on another note here because as well last night, again, President Trump announced some tariffs. So far, we managed very well to get out of it. And this is caused by the fact that based on our strategy, local for local and the U.S. footprint with 4 plants, we can deal with it quite well. We are monitoring the situation closely. But for the time being, the impact is quite at the minimum, okay? So I think this concludes our today's presentation. Thank you.

[Operator Instructions] The first question comes from Markus Remis ODDO BHF.

The first question I have is actually more a legal one. So ABBs per se are nothing that is, I should say, unknown to the market. But why was the need for the ad hoc message and you have well flagged on various occasions that these treasury shares are not there to stay forever on the balance sheet and that it would be a means to reduce debt. I mean, just remembering the Capital Markets Day presentation. So why this ad hoc message?

Yes. So actually, there is a practice of the FMA to expect an ad hoc announcement as soon as there are concrete evaluations of an ABB. So up to now, we always said that this is a potential transaction, which could happen one day. We always said this is far away because the share price is far below what we believe is a fair valuation of the company. The market capitalization is far away from what we would expect. Now we have, on the one hand, seen a certain share price development from the beginning of the year. But even more so, we believe now that we are at the beginning of a new cycle. We will see probably next year impacts from the fiscal package in Germany. We expect that at a certain point in time, we will see major impacts from Ukraine. This will probably impact, on the one hand, our share price. On the other hand, this requires also investments on our hand in order to benefit from the opportunities we have. So we believe that it's a good point in time to be more concrete on doing this. And at the moment or until now, it was more or less something where I, as a CFO, in my resort talk to banks, get information, talk to laws, but it was not an official project of the Executive Board. And this is why this week on Tuesday, we had an Executive Board meeting where I proposed now that we, as a Board together, look into this transaction, evaluate when to do it; if we want to do it, what are the proceeds -- or what do we want to do with the proceeds. And as this is now going to the next level, it's required to have also an talk announcement. And on top of this, I've been talking to banks. Now it's about also being more precise and who could be potentially a partner, et cetera, giving a mandate to lawyers in order to do this and also to share this within the Board, it's required to make this a talk announcement. So it's a legal requirement, confirmed by lawyers from 2 different law firms. And there is always a risk to confuse the market. And of course, if you compare it to a transaction where a shareholder is selling the shares in ABB, you don't have this talk announcement so this is specific for a transaction of a listed company. But this is just the legal situation we are in, especially in Austria with the practice of the announcement process.

Okay. So just to get it straight, you said it could well happen in 2025, not short term, but timing will still be 2025, which would also enable you then to finance the growth steps that you've described.

Yes. However, again, it's depending on several circumstances, especially if the capital market environment is supporting this transaction. So we won't do any stupid things, and we are not forced to do it. So this is the good thing. So we are not in a situation that our balance sheet requires some measures to raise capital. It's not that we couldn't finance the measures we have in mind, but it gives us the possibility to boost initiatives, to increase the speed and to gain momentum even faster.

Okay. Very clear. So essentially, the more than EUR 90 million that you've flagged in the Capital Markets Day presentation, that's still kind of the goal or rather the EUR 100 million valuation that was implicitly agreed when you acquired the shares.

So there is no concrete value we can say today. What we can say is that we will not do it if the market capitalization is not at the right level from our perspective. And the amount you mentioned right now is, for sure, not the limit for the PALFINGER share price in our perspective. So I can't tell you a value right now, but we are far away at the moment from where we believe a fair market capitalization should be. And it can be a further boost here really on our business. And this means in service and parts activities, we can further grow. We identified we have raised this as well at the Capital Markets Day. And now as well, we could even further boost our defense business.

Okay. Third and last question from my side. The topic of defense business. So -- I mean, it was not that relevant for quite some time, now apparently very hot. Can you remind us -- I know it's about 4%, 5% of your revenues. But can you remind us which products are specifically suitable for the defense business and which initiatives you're now setting to capitalize on this proposed spending?

We are advancing certain activities like on hooklift, loader cranes as well the truck-mounted forklifts. So we are doing certain activities here. We could speed up the process in terms of dealing and talking here to the different forces we see here in Europe. And we could add as well, let's say, some resources to get it faster. That's all. And we are dealing with them one by one, but we will put additional resources on that, but it's mostly about the hooklift [indiscernible] and as well the classical loader crane and certainly truck-mounted forklift.

Okay. And is it fair to assume that competition is a little -- that there's a little less competition because defense business requires, I don't know, higher or more sophisticated and requires qualification that might not be fulfilled by everybody?

Let's put it in other words, we are the preferred supplier to the army, okay, the German army, the Austrian, France, even Canadian, all these guys. Yes, we are the preferred ones. Now we need to show that we are capable, but with all our industrial footprint we have globally, we can deal with that. So I hope this answers your question.

The next question comes from Jorge González from Hauck Aufhauser.

I'm wondering if all these proceeds are now in your mind, going to be directed for the defense business or taking into consideration the tariff situation that we have learned yesterday night, if these proceeds could be also interesting for you in terms of strengthening your position in U.S.? Could you give us some color on this, please?

Certainly, we will as well further increase our business and our local footprint in the United States, I mean, for the time being that we managed quite well to overcome tariffs. We are having 4 plants. We already rolled out the strategy, local for local a couple of years ago. This is now fully paying off. But as well, we will further invest in localization of products of PALFINGER, but this is not something, first of all, we can do overnight, and we don't want to do overnight. It's as well in the midterm. And this is as well a part of the strategy local for local.

And regarding the defense business, can you give us a little bit of color on how you expect the business to get to you? I mean, is there going to be oceans or is maybe, I don't know, one of the champions -- defense champions in Germany like Rheinmetall ordering you directly for something. So you have already any partner that is planning to work with you at this point, and this is what is making you so optimistic on the demand for your products, specifically for defense?

No, we are partnering with all these guys. We are everywhere the preferred suppliers. It's not only Rheinmetall, it's about KNDS, it's Nexter. All these guys are customers of us, and they are using our equipment. They're installing our equipment. So I think this is important to know. On the other hand, let's say, the entire European countries need to protect themselves in a better way. So they are further investing and that's as well one of the benefits we have. But I would say it's not only about Europe, it's as well about Middle East. So we are still supplying hooklift and other stuff to Middle East. So I can't disclose it, as you can imagine. It's not that open business here we can talk about, but this is really something where we can substantially grow. And as well on another note, I think not to forget about our Marine business. You have seen last year, the numbers are looking very positive as well here. We see some further growth potential. So we just try to accelerate and using this opportunity of the ABB to get -- to be even faster and better than the others.

[Operator Instructions] The next question comes from Daniel Lion from Erste Group.

[Technical Difficulty]

Daniel, you have a very bad connection. We cannot hear you.

Okay...

Now it's better.

Now, it's better? Okay. I wanted to ask if your thoughts are somewhat limited to sell the shares? Or are you thinking of about other means of selling the treasury shares?

So we did not consider other means. So the main target now, as we also communicated is to evaluate a placement via a private placement in the process of an accelerated book building so this is what we have in mind. At the moment, we have no other plans to use the treasury shares, for example, as an acquisition currency or whatsoever.

Okay. Do you also -- regarding your military business, do you have an [ ISO ] certification? So can you also supply the U.S. military with your products?

For certain products, we're in the process to get this again reconfirmed because you have by product line and by the different products you are supplying, you have to get this license. This is in process, yes.

How long do you expect this to take?

I think sooner than later, we are in the process to close it. But as I said, it's difficult to disclose anything here, to be honest.

Okay. And then regarding the proceeds, would you expect -- in case if you realize close to around EUR 100 million from the sale, would you expect to sell or use the entire amount as an investment? Or are you somehow thinking of also reducing your debt position?

So in the end, this will also help, of course, the balance sheet structure. To a certain extent, it will help us to reduce net financial debt because some of those investments we had in mind in any case, but just to make sure that we can show a stable performance from a financial point of view, we would have stretched it more. So this means that we are pulling forward some of the measures. But of course, in the end, it means if we take the proceeds of those measures, it will reduce the amount of debt we would need additionally, for example, in the future to finance those things. So yes, in the end, it will also help to reduce net financial debt.

Okay. And the last one regarding products, are they products for military basically the same as for industrial use? Or are they somehow different, more complex or they need some additional features?

No, they are modified certainly to the requirements of the different customers we have. And it's not only about the color that's clear. There are certain other elements. But as I said again here, we can't disclose anything more.

The next question is a follow-up from Markus Remis, ODDO BHF.

Just a quick one on the topic of U.S. imports. Can you remind us whether those products that you import or export from Europe into the U.S. whether the situation is the same for your competition, meaning that they also do not have local production on those products?

Yes, we have a big benefit that we have more local production, more localized products than competition. On the classical loader crane, it's similar to our competitors. Here, we're having 2 opportunities. One is to go via Canada, which is also not a good option at the moment or to go with direct shipments here from Europe into the U.S., where there were no tariffs for the time being, but we are quite flexible on that. And we as well further monitoring here what can be done in midterm. But as I said, the impact for the time being was very limited, and we have different ways to play around.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Andreas Klauser, CEO of PALFINGER, for any closing remarks.

Yes. Thank you all for attending this call and sorry for the short notice, but I think it was important to further clarify what we're having on our mind. I think you will as well see in the next couple of months quite a positive development of PALFINGER, of our business and stay with us, and thank you for your attention. Bye-bye.

Ladies and gentlemen, this conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.