R. STAHL AG (RSL2) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the R. STAHL investor and analyst conference call for the full year 2023. [Operator Instructions] I would now like to turn the conference over to Judith Schauble, Investor Relations. Please go ahead.

Thank you, Yota. Ladies and gentlemen, a welcome also from my side, and thank you for joining our today's conference call. Our prepared slides are available under the Investor Relations section of our website, www.r-stahl.com. Shortly after we will have finished this call, a replay of the entire conference will be provided for download at the same place. Please be aware of our disclaimer statement, which you find at the beginning of the slide deck. And now I'll pass on to Dr. Mathias Hallmann, our group's CEO, who will walk you through our presentation.

Good morning. Also a very welcome from my side to our 2023 analysts and investors conference call. We start with the summary. We look behind on an operationally very strong and successful 2023. We enjoyed very strong order intake, especially in the first half of the year, and ended with a 9.3% increase to a level of EUR 342.5 million. We could also improve our sales level, and that happened mainly in the second half of the year to a level of EUR 330.6 million. Both values are actually record values in the history of the company, which we have never seen before. EBITDA pre also strongly increased by 73% to EUR 38.6 million and then EBITDA pre margin of 11.7%. Also this EBITDA pre level, we never had before. Free cash flow improved to a slightly positive number of EUR 300,000, despite another strong buildup of working capital. Net profit decreased to EUR 200,000 from EUR 1.9 million due to the full impairment of our Russian participation in ZAVOD Goreltex, and that then resulted in an earnings per share of EUR 0.03. If we look in the development of our sales and order entry, we see 10 consecutive quarters with order intake above sales, which peaked in the Q1 and Q2 2023. And what we then see in the second half of the year is a strong increase in the operational performance and thus in sales of the company. So in both dimensions, we then reached levels, which we couldn't achieve in the years before. Looking into the regions. We had another strong year in Germany. Also Germany developed nicely during the pandemic already. We have a very nice increase in our central region of 25%. Also a good, a very nice increase in Asia Pacific with 24%, which shows the increasing impact of our internationalization strategy. Americas is a little behind. Nevertheless, you have to have in mind that we had almost 40% increase last year, but this reminds the region where we have to do some more work in the near future. Looking into the P&L. We start with the sales of EUR 330.6 million, year-on-year increase of 20.5%. Cost of materials went up by 16%, which indicates that we could very well manage the inflationary development in our economy. Personnel costs increased 10%, so that shows very nice efficiency gains and thus, economies of scale in the business, which then resulted in a very -- all resulted in a very nice increase of our EBIT level to EUR 19.1 million, where we had EUR 4 million -- EUR 3.9 million in the year before. The negative piece is our financial results, which actually end at a level of minus EUR 17.1 million. I will go into that in more detail on the next slide, and then we have a net profit of EUR 200,000. All the other numbers, we already discussed. Yes, here on Slide 9, we look a little bit deeper into the effects of the impairment of our Russian subsidiary. We have a negative impact of EUR 2 million in our other operating expenses. That indicates that EBITDA and EBITDA pre would actually be EUR 2 million higher without that impairment. So that means EBITDA pre on a level beyond EUR 40 million and EBIT would be on a level of [ 21 ]. Then in our investment result, we have another impairment of EUR 10.3 million, which is the full write-off of the company value under IFRS. And then we have two numbers in the results from companies using the equity method, which look the same, but have different backgrounds. The first line is the results of the first 3 quarters, which we booked from ZAVOD Goreltex. And then the second line is again EUR 3.2 million, but it's not the same number you see in the 0.1 on the top. It comes from currency translation, which is based on currency changes between the acquisition and the final write-off of the company. Our interest result went up to EUR 6.9 million, and all that then resulted in a financial result of EUR 17.1 million. If you look back the year before, the year before, we had 0 in the financial result, and the impact of the ZAVOD Goreltex story is roughly EUR 15 million of that. Free cash flow. We start with a net profit of EUR 200,000. Then we have high depreciation. There, we again see the EUR 10.3 million of the impairment. That all then ends with some minor additions to -- in a cash flow of EUR 33.3 million. We have another strong changes in working capital, but we had our peak already in the third quarter of the year. And we are now on the way bringing working capital again down with stabilized supply chains all over the place. Then we had cash flow from operating activities, EUR 14 million, some stronger investment activities of EUR 13.9 million, and that's all resulted in a slightly positive free cash flow of EUR 300,000. Our net debt ratio -- our net debt was EUR 38.8 million without leasing. Looking at our strategy, and net debt already leads me to the first results of the first quarter 2024. We explained that strategy when we started with the turnaround of this company. We started with efficiency measures, added technology pieces where we streamlined our portfolio, added initiatives where we concentrated more and more on attractive industries with underlying long-term trends like LNG or the pharmaceutical industry or the newest nuclear industry where we talked about, in our last call, we work on sustainability measures. And then the newest initiatives are on digitalization and internationalization. Internationalization, we clearly indicated that with our numbers that we are well on track. Digitalization takes more time. Nevertheless, you make a good progress in all aspects of the business. What I want to point out is what you see in the middle, which is our EXcelerate program, which is actually aiming to get much more control, real-time control on the financial and underlying strategic developments of our company. EXcelerate is a performance management improvement program to enhance data-based financial steering and improve the overall finance organization performance. Implementing the program, it will help us implement our strategy -- implementing our strategy all over the place and thus increase revenue, help us to get more efficiency gains and keep our costs under control. Very quickly, I want to indicate on the next slide what it means. We started with an overall definition of our leadership claim and principle. What does it mean? It's a clearly -- a clear description who is responsible for what, who is responsible for managing and controlling what, and what are the underlying KPIs to measure success. That resulted in the definition of profit and loss accounts, cost accounting methods and value streams and cost allocation, which we standardize all over the group. We developed new reporting guidelines and packages, completely new planning and forecasting procedures. And we are behind the implementation of a new tool and it completely changes the organizational design of our finance and controlling department and, clearly, the underlying IT landscape and structure and support. The conceptual part of this program is widely finished, and we are now in the implementation phase, which, will, on a very intensive level, last until mid of the year '25. Let me now look into the key figures. We had surprisingly good orders. In the first quarter, you see the not very promising development of 2023, where we had very strong quarters in the beginning and an okay-ish quarter in Q3 and a pretty disappointing quarter in Q4. From order entry standpoint, Q4 was definitely very strongly influenced from destocking of our customers, destocking activities, because also our customer realized that global supply chains became more and more stable. And when we talked to other industry players, they had -- all of them had the same effects in Q4 with respect to order intake. But it's also reflecting the ongoing uncertainty, especially in the European chemical industry. And we all know these developments. We still have it. We see it now again, nevertheless, nice orders in the first quarter of the year. Some big projects came in. We got another volume from the nuclear industry. We got nice packages from the petrochemical industry. So some new greenfield investments are taking place, but the general weakness of Q3 and Q4 is holding on, and we are only expecting to see a more stable trend in the standard business from Q3 onwards. Our sales increased again by 8.5% year-on-year, so we had a good start in the year operationally. EBITDA fell to EUR 8.4 million. What we see here is some higher material expense ratios. There is increasing competition in the market. But nevertheless, we keep it well under control. We have the inflationary effect in our personnel costs, which are there. And we also have the onetime effects of our EXcelerate program, which come close to EUR 2 million in Q1 2024. And that clearly defines the agenda for the rest of the year. Margin control and cost control will be in the focus of our management team in the coming weeks and months. The outlook. Yes, based on the good order entry in Q1 and the good order book we already brought in, we expect further growth to a level between EUR 335 million and EUR 350 million. EBITDA pre range is a little bit open at this point of time, as we see quite some unsecurity in the market. Nevertheless, I'm optimistic that the second half of the year might positively surprise. Free cash flow will definitely move into the positive range, and our equity range -- ratios will further improve. I mean, the risks, we all know, the ongoing crisis and the general economy. And yes, especially the general economy is probably what we are looking at because you don't move, we don't move market share quickly in this industry, and that means a soft economy is holding us back and a strong economy is pushing us. And this is the truth where we have to face, especially on -- in the short term, mid and long term, I'm extremely positive that with our strategy, we are well on track, and we'll see nice developments in the future. That's from my side. Thank you very much, and I'm open for questions.

[Operator Instructions] The first question comes from the line of Konstantin Völk of NuWays.

Konstantin Völk from NuWays. Can you hear me well?

Yes.

Yes, we can hear you.

Perfect. I have three. My first question is about the working capital. So your working capital increased quite a bit during the last year. Could you give us a little bit more color on that and your expectations for 2024?

Yes. I can give that. Should I do it directly? Yes. The working capital actually was mainly driven by a strong increase in our stocks for electronic materials. We had, over the last 2 years, severe delivery issues in almost all electronic components. We had to buy some critical components on the gray market. We were facing sometimes price increases of 3,000%, 4,000%. And we were facing the situation that deliveries, which were guaranteed never showed up. And so we had to make a decision between coming to a situation where we couldn't deliver or investing in working capital and taking some risk. And this is, at the end of the day, the result of it. This development peaked in the third quarter, and we are now in the phase where we started to bring it down. And I see a significant reduction of working capital latest in the -- starting in the second quarter, starting now.

Yes. That sounds good. I understood. And my second question is about the LNG business. So the German LNG business looks quite promising, but I think you mentioned once that the ship building at the bottleneck now for LNG. How strongly is this bottleneck restricting your growth in the LNG sector? And how is your expectation for the current year?

We don't have a bottleneck anymore. We fully worked down our backlog. And talking to our big customers, they are extremely positive that this very strong market will continue at least until 2026. And honestly, I can't see that it's breaking then because the only reason to break would be a strong hydrogen economy, and that takes much more time.

Okay. Understood. And about your personnel costs, would you say that a 4% increase in personnel costs due to the collective bargaining agreement is reasonable. That will [indiscernible] something like EUR 140 million in personnel cost.

Globally, we see -- I mean, if you compare it year-on-year, we have an increase of 10%, roughly. And 2/3 of this is tariff increases and 1/3 of it is new people.

The next question comes from the line of Klaus Schlote with Solventis AG.

I have got a couple of questions. We can -- could start with the personnel cost. You just mentioned 10% year-on-year. Was that -- that was starting second half of last year and will carry into first half of this year, and second half of this year should look better then. Is that right?

It should look a little bit better because some increases, you already had in the second quarter of last year. But it's not going to go down, but the year-on-year comparison might look better. Nevertheless, we -- I mean, we look into the ongoing discussions. And what I saw -- for example, hear from the Netherlands and what I hear from Norway, but also from some parts of Germany, and we all see what the tariffs do in some industries. I expect further increases during the year. And as I said, it's now the time for performance management again.

Then regarding the Goreltex issue, and you provided the figures in the -- on the different levels. If we would take ZAVOD Goreltex in total as a pre, where will we end then in terms of net profit? We are now at EUR 200,000 reported net profits. Could we add EUR 50 million back on that? Or is there also a tax issue?

No, no. We add -- we needed to take out the profit from the first 3 quarters, then we could add the EUR 1.9 million in dividends. And then we could add -- would add the impairment of EUR 10.3 million. And then we would add again this currency translation, so that the net profit effect without tax would be roughly EUR 12.2 million. As I calculated, you had EUR 10.3 million, plus EUR 1.9 million to EUR 12.2 million, EUR 12.3 million. That would probably not drive a big tax effect as we have the tax shields from accumulated losses from the past, but I'm looking at my tax expert now. Yes, he said there's no effect. So we would end in a net profit of EUR 12.5 million roughly.

EUR 12.5 million. That would be almost EUR 2 per share.

Yes. That would be close to EUR 2 per share, EUR 1.90.

Yes. Okay. That sounds good. .

Yes. It would have been good, but...

Yes. Sometimes -- minus accounting. No, but...

This is not in accounting.

No, no, because for -- in '24, the profit from Goreltex will be missing, right, and -- which was quite strong in the first 3 quarters of '23 with the EUR 3.2 million. And also what we'll be missing is the dividend paid. I don't -- for how many months was dividend paid by Goreltex last year, do you know?

Less than 10, 11.

10 months? Okay. And that was more than EUR 1 million, right?

Yes. That was more than EUR 1 million. But that was not additional profit. That was cash flow then.

Okay. Then regarding -- you mentioned Americas, that was in the context of the other regions, a little bit disappointing with the -- and got increase with 8.6%. But you said you have some more work to do. What do you mean by that in the Americas?

We -- I mean, it goes into this, what we call internationalization. I mean, we drove a very clear strategy over the last couple of years in -- with structural changes, with process improvements. We implemented SAP and implemented new engineering tools, new configurator, new sales processes, new production processes and so on and so forth. And we have some issues in our internal organization in the U.S. with really driving performance. And yes, we now concentrated in the last months on Asia Pacific and made significant progress there. And we will be addressing the U.S. this year.

Okay. In the Asia Pacific, it's mainly LNG business. Is that...

No, no, no. The LNG business is mainly coming from Europe. I mean, the strong players in the world are well known. It's KONGSBERG is the #1 in Norway for ships. And then we have multiple players for the plants. But we do have all the strong LNG business -- or good LNG business out of the U.S., mainly for Australia and the U.S. . But Asia is a couple of FPSOs, floating production units for the oil and gas. It's standard lighting for the petrochemical and the chemical industry. It's some pharmaceutical business. It's some LNG. But it's not -- the LNG boom is not really taking afar. It's not taking place in Asia or the [ customer zone ].

I thought these ships are -- in Asia, the ships are built there, aren't they?

No, no. The ships are built in Asia, but not the critical components where we are delivering to.

Okay. And what is this [indiscernible] in Asia Pacific? You mentioned the ships and [indiscernible], which helps to increase...

[indiscernible] Where did we do that.

It's in the press information on the second page, where you discussed [indiscernible].

Let me -- now you are surprising me a little bit.

Sorry. I was reading it, and I thought, what is this [indiscernible]. So...

I'm just looking into it. Chips on [indiscernible], I think it's not a very good formulation. Sorry for that. I think it's this FPSOs we sold in production. It's actually platforms, which are mobile -- production platforms, which are mobile. And you move it from one place to the other for smaller oil wells or smaller gas wells. And then you build that up, that's built in modules. Yes, we have to improve the wording.

Okay. This EXcelerate, you mentioned this EUR 2 million in Q1. Is that a pre item?

No. We don't put it in the -- under the pre, as we never defined that in that way. One could do it, but we discussed it. But we said we are not going to change to -- it's just to print the numbers.

Okay. And dividend will not be paid, that's for quite sure, I think. But the discussion, of course, might take up speed again when we talk about result '24, but that is a year off.

Yes. I don't want to -- we don't want to speculate on that. The dividend is being -- I mean, you know that it's being paid out of the AG under the HGB. And we have to look at the quality of our balance sheet. And then there are also rules and procedures, what you can pay, when you can pay, and those we have to follow.

The equity ratio, still, you are aiming at 30%, right?

I think we are above 30% at this point of time and has no problem if it's going higher.

I mean, on the group level, it's 25% -- was 25% end of '23. And at the AG level, it might be higher, yes.

No, no. AG level is lower. On group level, we are definitely aiming beyond 30%.

[Operator Instructions] There are no further questions at this time. I hand back to Dr. Mathias Hallmann for closing comments.

Yes. Thank you, ladies and gentlemen, for participating in this analyst and investor conference. There will be no call for the first -- final first quarter results, which we publish in May. So the next call will then for the first half year in early August, on the 8th of August. And yes, thank you for listening, again, and have a good time. Until then. Bye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.