Phoenix Mecano AG (PMN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Phoenix Mecano Semiannual Results 2026 Conference Call and Live Webcast. I am Mattilda, the Chorus Call operator. [Operator Instructions] The 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 Dr. Rochus Kobler, CEO. Please go ahead.

Thank you. Ladies and gentlemen, good morning, and thank you for joining us today. I appreciate your continued interest in the Phoenix Mecano Group, and I'm pleased to welcome you to our webcast covering the group's business performance for the first half of 2026. For those of you joining us for the first time today, my name is Rochus Kobler. I am the CEO of the Phoenix Mecano Group. And with me today is Rene Schaffeler, our CFO, who will present the figures for the first half year. Following our presentations, we will be happy to answer your questions. And you just heard how that works orally or written. In the following minutes, we will provide an overview of our business performance and share our perspective on the opportunities and challenges we see for the rest of the year. Let me begin by highlighting the key developments of the first half of the year. Looking at that, we have seen a mixed picture when we look at our 2 main growth areas, namely Industrial Solutions on the one side and Smart Furniture on the other. While some of our businesses continue to benefit from attractive long-term growth trends, others are facing macroeconomic and geopolitical challenges. But the main message at group level is this one. In a market environment that remains demanding and at unpredictable times, our group has delivered a solid operational performance and a clearly improved operating result. We have proven resilience based on our solid business model and our balanced portfolio. Despite the impact of the war in the Middle East, which began to affect supply chains in the second quarter, the Phoenix Mecano Group achieved sales growth in the first 6 months. As anticipated, growth slowed noticeably after a strong first quarter. And as we communicated, Q1 should not be extrapolated for the full year. More importantly, profitability grew faster than sales, mainly driven by a significant increase in the operating result of the Industrial Components division. What is particularly important to me is that our performance did not come from pure short-term effects or from an isolated factor. Our strict focus on profitable activities in industrial niches with growth potential in combination with our transformation from a pure component player towards a solution provider, this continues to pay off. In this way, we are benefiting from structural trends that are not temporary and they are little affected by the uncertainty of supply chain disruptions brought on by the war in the Middle East that I mentioned before. One concrete example is the structural demand generated by the megatrends of decarbonization and electrification. These trends are driving strong demand for our Measuring Technology business area, whose products are used in the modernization and expansion of power generation and distribution networks as well as in the build-out of AI data centers. In this environment, we have successfully captured new business in the U.S.A. with product innovations specifically designed for data center applications. At the same time, I do not want to understate the challenges we are facing at the moment. We continue to operate in a world of fragile supply chains and geopolitical tensions. Our largest division, the DewertOkin Technology Group, felt the impact of weak international furniture end markets as well as cost increases for electric components and in logistics. Overall, the Phoenix Mecano Group is demonstrating a resilience, operational discipline, and a clear progress in profitability even in a demanding and uncertain market environment. On divisional level, we see a mixed picture. Our industrial divisions are currently compensating for the weakness in the furniture market and are driving profitability. Rene Schaffeler will now take a closer look on this divisional level and at the financial development of the group of the first half year. Rene, over to you.

Dear ladies and gentlemen, I will start with group results for the first half year and then give an overview on the division's performance. So we start with the consolidated results. Phoenix Mecano consolidated sales -- gross sales rose by 2.3% to EUR 389.2 million in the first half year. In local currency, sales were up 3.9%. In the Enclosure Systems and Industrial Components division, sales increased, thanks to the expansion of energy infrastructure and growing demand for electrical components, while DewertOkin Technology Group, DOT Group, recorded a slight decline in sales. Net sales totaled EUR 383.4 million compared to previous year with EUR 376.6 million. Incoming orders rose by 2% to EUR 383.2 million. In local currency, they were up 3.7%. The book-to-bill ratio was 0.98 compared to 0.99 in the previous year, indicating a steady development. The operating cash flow, EBITDA, increased by 15.5% from EUR 32.8 million to EUR 37.9 million, and the operating result, the EBIT, by 23.5% from EUR 21.3 million to EUR 26.3 million. All 3 business areas of the Industrial Components division made a significant contribution to the improvement of the results. Margin improvements in the Enclosure Systems division had a positive impact as well. The result of the period increased at a lower rate of 2% to EUR 14.7 million compared to EUR 14.4 million in previous year. It was impacted by exchange rate losses resulting from the weaker U.S. dollar and stronger Hungarian forint against the euro. In total, net currency losses in the first half year amounted to EUR 2.1 million compared to a net currency gain last year of EUR 1.1 million. Then we come to the division performance, starting with Enclosure Systems. Sales in the Enclosure Systems division increased by 2.9% from EUR 110 million to EUR 113.1 million. In local currency, they were up 4.7%. The operating result rose from EUR 15.2 million to EUR 16.9 million, and the operating margin from 13.8% to 15%. In the second quarter, the division surpassed the positive earnings performance recorded in the first quarter. Thanks to appropriate inventory levels and alternative supply routes, the division was able to continue supplying its customers in the Middle East region despite the Iran conflict. In the Industrial Enclosure segment, strong sales to major customers in the defense and the measurement and control technologies sectors drove the growth in sales and margins. The human-machine interface business, HMI, was affected by the continued reluctance to invest in Germany's mechanical and plant engineering sector. By contrast, demand in the explosion protection business remained stable at a high level due to the positive momentum in the energy and chemical sectors as well as infrastructure and modernization projects. Now we come to Industrial Components. Gross sales in the Industrial Components division grew by 7.9% from EUR 96 million to EUR 103.6 million. In local currencies, the increase was 8.9%. The operating result rose from EUR 2.4 million to EUR 8.5 million, and the operating margin, therefore, from 2.5% to 8.2%. The sharp improvement in results was driven by the dynamic development of the Measuring Technology business area at the beginning of the year, an improved capacity utilization in the Technical Components business area, and a more favorable cost structure in the Automation Modules business area despite demand in the latter failing to recover. In the Measuring Technology business area, project delays and weak demand from mechanical engineering and drive technology sectors resulted in a normalization of the very strong momentum we have seen at the start of the year. However, the underlying drivers for the first quarter remained intact. A new headquarter in Jülich, Germany, with capacity for up to 150 employees provides space for further growth and strengthens the business area's position as a partner in the energy transition. Customers in the Technical Components business area are more optimistic about the future than they were a year ago and have resumed placing long-term orders. There are currently no signs of this positive trend coming to an end shortly. A new production facility at the Baiersdorf site near Nuremberg enables more targeted product development and faster manufacturing processes. Then we focus on DewertOkin Technology Group, DOT Group. DOT Group division sales saw a drop of 1.7% to EUR 166.8 million. In local currency, mainly Chinese renminbi and U.S. dollars, there was a minimal growth of 0.1%. The operating result fell from EUR 5.6 million to EUR 3.9 million, and the operating margin from 3.3% to 2.3%. Business performance of DOT Group was held back by weak international furniture markets and supply chain bottlenecks affecting electronic components, which also led to higher material costs. Cost structures, both in Europe and in Asia, were adjusted. However, these measures weighed on the result in the first half of the year with one-off expenses of approximately EUR 1.5 million. Further measures are under consideration to ensure a significant improvement in profitability in '27. Second quarter results should have marked the lower end. So far to the figures of the first half of the year. Thank you for your attention.

Thank you, Rene. Let me quickly summarize this divisional picture for you. The DOT Group still under top line pressure with profitability affected by weak end markets and higher input costs. Second, Industrial Components, the strongest growth momentum for the group and a significant contribution to our profitability. And last but not least, Enclosure Systems with a solid growth and consistently high margins, supported by resilient demand in attractive niches. With this in mind, let us try to look ahead into the second half of 2026. The economic environment on our key markets is currently marked by the uncertainty caused by the war in the Middle East and by ever-changing U.S. trade tariffs. Despite these negative factors, the confidence of our industrial customers has been gradually improving over the last month, and they are now more willing to invest in new projects. In Germany, especially, and we will see the new index coming out at Ifo today, the government-backed investment initiative for infrastructure and economic modernization is also beginning to filter through into economic activity. Underneath this upswing in general business sentiments, our industrial activities keep benefiting from structural growth drivers. We mentioned it. The strongest momentum continues to come from areas where Phoenix Mecano is well positioned, such as decarbonization, electrification, and industrial digitalization from the Industrial Internet of Things to physical AI and cyber-physical systems. Whatever terminology is used, these are not short-term cycle topics. They are long-term investment trends that require reliable technical components, customized solutions, and engineering expertise as well as customer relationships -- close customer relationships, precisely where the Phoenix Mecano business model locks in and where we are creating value for our customers. A different picture currently emerges on our Smart Furniture division, the DOT Group, where end-customer demand remains subdued as tariffs and inflation have driven up prices. Higher costs for raw materials, electronic components, and logistics continue to weigh on the profitability. Nevertheless, we expect conditions to improve during the remainder of the year, supported by the restructuring measures already implemented across our operations in Asia and Europe, and we remain committed to restoring a significantly stronger level of profitability at DOT in 2027 and stand ready to take additional measures should they become necessary. For the Phoenix Mecano Group as a whole, we expect an improvement in the operating result compared with the previous year. We are not building this plan on strong cyclical rebound. We are building it on structural opportunities that we can catch and on strong operational execution in attractive niche markets. This was it from our side, and we went through the slides now with you. Give us a couple of minutes to join your Q&A list. And if you like, please pose your all questions on the phone line as well.

[Operator Instructions] The first question comes from the line of Louis Billon from Baader Europe.

My first question is about DOT. Why do you see the demand to remain weak in the second semester? And when do you expect a recovery? And what kind of feedback do you have from your customers? And maybe another question also on DOT. Can you quantify the restructuring charges booked in H1? And maybe what do you expect in terms of restructuring for the second semester?

Yes. Thank you for the question, Louis. First part, these are many questions in a row. The restructuring cost as well as the outlook on top line for the end of the year. And the effects that have slowed us down in growth currently, that are the increased cost, logistics cost, as well as the cost for electrical components and PC boards, they will not just disappear as long as geopolitical uncertainties are around and actually disrupting supply chains. So we will still face that. On top of that, for the DOT Group relevant, are the tariff situations that are a moving target. However, it seems to be a moving target, but we have arranged us with these tariffs now. We have to arrange us with these tariffs now since they are staying. They just get new names, but at the bottom line, they're always staying. So these tariffs are also pushing end-customer prices higher. So on the one side, we have input costs that are slightly increasing, and we cannot just pass on these costs immediately. These contracts are longer than 3 weeks, 3 months in the DOT business. On the other hand side, we have our customers that have to pay duties, not us, that have to pay tariffs and that will, of course, increase end-customer prices on top of the inflationary trends in the United States in our biggest end market. So the whole picture will most likely not just disappear and change immediately. That's why we assume that, that growth level that we had in the last years, 2 digits, will not just come back. However, we are responding to that situation by product innovations in digitalization and by pushing our business model for DOT as a one-stop shop further. To the cost of the restructuring, I would afterwards like to hand over to Rene. And then when Rene has answered the question -- actually, you have quantified it with EUR 1.5 million, but please elaborate a little bit on that, Rene. And when you are finished, I would like to add on a question that came in written. Can you stay in this business unit, the question was, can you give us any news about the potential DOT IPO? Is that still your preferred option and still planned despite the bad figures of not as great performance right now in '27? And are you also evaluating a sale? I will answer this question after you have jumped in, Rene, with the restructuring cost you have just mentioned before.

Yes. Regarding the one-offs in the first half year, I mentioned that briefly, it was roughly EUR 1.5 million negatively affecting the result of DOT Group. These were measures taken both in Europe and in Asia, also to adapt some capacities. And we are, as mentioned, willing to take further measures in the second half of the year, if needed and to the extent needed to improve the business performance of DOT Group. At this point, it's not possible to quantify the further one-offs for the second half of the year. It depends on the development we will see in the next couple of months.

Thank you, Rene. Yes, let me add one thing here. Additional measures are under review. They include business as usual. We are, of course, taking on supplier negotiations. They remain ongoing -- an ongoing priority. This is business as usual, particularly in the current environment of rising input costs. And we are also looking at further sharpening the focus on more profitable customer segments and that we are assessing selective portfolio optimization measures. So it's very hard to become more concrete and all this depends also on the development of the end markets. Thank you, Rene. And yes, the question I read out before about DOT IPO plan, alternatives like a sale and what the figures have -- if the figures have an impact on our plan. Well, let me begin there. The temporary weak performance does not change the strategic logic behind preparing DOT for an IPO. The strategic logic is much broader in the timing of the market. One important rationale is that DOT's growth that I mentioned before, historically, has been financed largely from the Phoenix Mecano's industrial activities' cash flow. And an IPO would give DOT access to fresh risk capital, growth capital from the capital market to finance future growth more independently from us, while at the same time, making the value of the business more visible as well. A separate capital market profile for DOT can also help to sharpen Phoenix Mecano's and DOT's equity story. And this is particularly important for DOT as it has its own market dynamics, its own investment requirements, its own growth drivers, growth opportunities, and growth rates in the Smart Furniture business. And yes, we have always seen us, management team has always seen and our Board, the IPO should create us options -- strategic options. Our IPO plan should not be understood as unconditional commitment to execute a transaction at any price under any market conditions. No, we are creating this option to exit the DOT business, clearly, but only if it creates value for the Phoenix Mecano and its shareholders. However, and this is the part of the question this is aiming for, an IPO would not allow an immediate full exit. We would most likely remain a significant shareholder for a certain periods of time due to customary lockup arrangements or market expectations and possible regulatory specific holding periods. The IPO preparation itself, therefore, more about creating strategic options and flexibility. And yes, this could also include a potential trade sale, which could offer a faster exit route if strategic or financial investors show serious interest. We will not rule this out, but would assess any such option. We would assess such option carefully in terms of valuation and execution certainty and shareholder value. And yes, at the same time, we are realistic about whatever investor, IPO or strategic investor expects. A transaction to be credible, DOT must demonstrate a convincing path to higher profitability, more resilient margins, and sustainable cash generation. And this is why the measures that Rene mentioned -- the improvement program is central. The current performance makes this work more important, not less important. I hope this was the right answer to all of your questions, Louis. And Mrs. Mattilda.

[Operator Instructions]

[indiscernible] Can I take another written one -- can you give us more details on the high performance on Industrial Components division, especially the part of the measuring technology in data centers? Yes, I can do that. I cannot -- I can actually even quantify this business because it's in all investor calls, one of the hot topics lately. And most of my colleagues are not brave enough to tell that this is still a small plant that we have in front of us when we talk about data center applications. But even if it's a little bit less than 1% of our turnover, it has a high, high growth potential. And yes, the measuring technology is the biggest success driver of the Industrial Components division. And this success comes from a new current sensor for AI data center applications, which we brought into the market in the first quarter of this year. And yes, data centers are booming, but we are not simply riding this wave on demand passively. I would like to explicitly give credit to our measuring technology team, and I'm sure some of them are online. You have actively looked into applications with high margins and high growth rates, and you found it in this application area for AI data centers. This product you designed especially to measure current in data racks with AI chips, which usually use higher current than normal chips. And the sensors are integrated into power distribution units where they help monitor and optimize uptime, utilization, and power consumptions of the racks. They also enable accurate rack-level electricity billing, which is crucial. And they also give security to the supply of the AI data centers for their own current. Thanks to our manufacturing expertise and our international production network, we can offer customers clear advantages. Here, we produce these current sensors in India in large volumes and of course, at competitive cost. As customers increasingly seek to reduce dependence on China for key components, our Indian production footprint has become a meaningful competitive advantage. And this is just one example of a new product for a specific application in the business area of measuring technology. Many of our MT products serve mission-critical applications, means high margins, where precision and reliability are essential. However, let me add one thing here. While measuring technology benefits most directly and immediately from these developments, I'd like to emphasize that our other industrial activities also participate in many of the same or similar growth trends. Our Enclosure Systems business unit, for example, provides highly engineered enclosures that protect electronics and sensors or provide control systems with human-machine interfaces in demanding industrial environments, such as in environments for hydrogen projects for energy and infrastructure applications. Everywhere where reliable protection and explosion-safe operation is critical. So key takeaway -- thank you for this great question. Key takeaway, these activities benefit from structural growth drivers that are less closely correlated to the overall industrial economic cycles. Again, less cyclical business. Yes. Do we have oral questions as well? Otherwise, I jumped in. Yes, please.

The next question over the phone comes from the line of Remo Rosenau from Helvetische Bank.