RATIONAL Aktiengesellschaft (RAA) Earnings Call Transcript & Summary

Hello, everybody. Can you hear me? Is everything okay? Maybe you can give me a sign. Okay. Perfect. Thank you very much. So good afternoon, good morning or good evening to everyone wherever you are in this world. I thank you for participating in this IR talk today and a very warm welcome to everybody. First of all, some housekeeping rules again. So I will start with a quick summary of the last week's results again, and then we can go over to Q&A session. [Operator Instructions]. And one hint, this call will not be recorded by us. So first of all, let me summarize the most important points of 9M 2025 given last week in the earnings call. So with sales revenues in the 9-month period of around EUR 918 million, we grew by 5%. And in Q3 alone, we grew even by 6% to EUR 312 million. FX turned negative for us since approximately Q3. And adjusted for these effects, growth rates would even be at around 6% to 7% for the 9-month period and for Q2 and Q3 between 8% and 9%, respectively. So this is something I want to highlight. It was the second consecutive quarter now again with organic growth rates within our long-term CAGR ranges of 8% to 9%. So this means the general business situation is looking very good. Just FX is hindering us from growing sales revenues even at a higher rate. And also, the order situation is looking promising so that we are confident to reach our sales guidance for fiscal year '25 at a growth rate in the mid-single-digit range, so at around 5%. Margin-wise, we need to mention the 2 biggest impacts, of course, and that is the U.S. tariffs and strong euro or the other way around, the weakness of our most relevant currencies as already commented on the sales development earlier. And as we already saw it in Q2, there was, again, a significant margin impact at around 120 basis points on the EBIT margin just for Q3. So this was again the same magnitude that we saw in Q2. And so for 9 months period, for the 9 months EBIT, this means a negative impact of around 80 basis points on the EBIT margin. And status now, we expect that the impact will continue in Q4, putting some headwinds for us on the margin guidance. On the other hand, of course, in the top line, we will be able to compensate with good business development. But on the bottom line, there will still stay some negative margin impact coming out of this topic. And on the tariff situation, we are facing additional costs, as already said, for the import tariffs to the U.S. that we estimate now at around EUR 11 million for fiscal year '25. EUR 6 million of that already were in the 9-month period and the remainder, so approximately EUR 5 million will be in Q4. So the combination of all these facts led us to make the guidance more concrete in August this year for a guidance -- margin guidance in the magnitude of 25% to 26%. And looking at the business development so far and the expected developments we have now after the 9-month period, we can confirm this guidance. So this means total guidance would be then we grow in the mid-single-digit area, and we realize a margin of 25% to 26%. Of course, we cannot give you a guidance for next year, but one thing that we already mentioned last week in the earnings call is the expected extra cost for U.S. tariffs, and I can repeat that here. This is around EUR 25 million, so total cost for '26 or EUR 13 million more than in '25, resulting in a margin drag of around 1 percentage point for 2026 compared to 2025. And of course, I know that you would be now keen on hearing more about our reactions on these additional costs. But as already said last week in the call, and there is no change until now, there is no decision yet on pricing that we can communicate now. And first of all, now, so those who know us who follow us for a longer period of time know it in the context of our budgeting where we are in now that the first step would be to evaluate saving measures in order to counteract higher costs and then afterwards derive maybe a potential pricing action. But that is all that we can say now about that topic. And yes, it was very short. I think there's not a lot more to say from my side now. And with that, I open -- or I'm open for questions. Let me just wait one -- we have some problems with getting the people on the call. Lars, did it now work? We just did a short reminder for last week, and now we are at the point where we start in the Q&A. I think you are right.

Okay. Perfect. Yes, I struggled to get on the call indeed.

We have some problems. There's another guy who is still -- it's running, but I don't know why it does not work. Let's see now I think it's on. I think Nicolas, I think you -- it worked now? Okay. So guys, also for Nicolas, we did just a short update on last week. There was nothing new. And now we can go over to Q&A. I just -- yes, I think maybe you might answer -- ask the one or the other question maybe we already had, but that's okay. So who wants to start? Lars, you want to start?

Any update on U.S. pricing? Have you taken a decision in the meantime?

I just repeat my second last sentence, I think there is no update on last week's call information. So I said we are now in the budgeting phase. And of course, there, we then are evaluating all the savings measures that are possible. And then later on, there will be a decision on pricing.

Sorry, can you hear me? I can't -- I'm still stuck in the waiting room, but I can hear you. I'm not sure you can hear me.

We can hear you now, Nicolas.

Okay. Can I ask you a question? Sorry for not raising my hand because I don't have the functionality where my screen is. But could I maybe just on the U.S. because we just talked about the U.S., the 4% growth, that's obviously a significant slowdown. And I just wanted to understand that a bit better. I know you had a tough comp, but is that the only explanation for that deceleration because it's especially -- I think it's from 10% to 4% sequentially.

Yes, it is. So there is -- when we look on the run rate, we are doing quite well, meaning last year, Q3 was by far the strongest quarter we had in the North American territory. I can just repeat it, we had around EUR 70 million in Q2 and Q4, and we had about EUR 77 million in Q3 last year. And this year, Q3 was okay, but it was a little bit less and adjusted for FX, as you said, it was around 4% growth. And when you look into the 9-month figures, we grew by 10% organically and 6% after FX. So meaning also here a little bit of negative impact, but Q4 should be then again, a more normal quarter. Is it okay? Lars again.

China, you said that production will start later this year. Sales will start early next year. Shall we expect any additional ramp-up costs? And would you be willing to share with us when do you expect production in China to be breakeven? And is it possible to compare the gross margin or the profitability contribution? I assume production in China is cheaper. Selling prices are also lower. But when it comes to profitability contribution, are there -- is there any information you're willing to share with us?

Yes, of course, of course. So there is -- we are in plan, as also said in the call last week, start of production can be now, I think, in December and the start of selling will be in March after the Chinese New Year. There will not be a significant amount of additional costs now, would you say, ramp-up costs. So I think we are through that in the meantime. And the margin contribution, at first, it will be presumably negative. That's for sure in the first quarters, years, depending on the development, of course. In the longer term, the plan is to have it approximately on group level. So meaning there is a lower price, but also there is lower production costs. And all in all, this should match that we come out with no margin dilution in the end.

Can I just ask a question on China?

Yes, you can.

Yes. Just when you say no significant ramp-up costs, so the cost base, as we've seen it in Q3, especially kind of that going forward is what we should expect, including the China model commercialization. And can I just ask one more on OpEx?

Yes, of course, of course, you can.

And again sorry, I can't raise my hand. I am still stuck in this initial screen. But R&D was quite high. Can you maybe elaborate a bit on what happened there?

Yes. On the one hand, yes, you know that R&D is one of our major, let's say, topics we are investing in, in order to keep our innovative level high. And I think we brought out a lot of innovations in the last time. We are working a lot of the time on, let's say, connectivity, intelligence, software topics. So the major part of the people we hire is software engineers in the meantime. And on the other hand, so this means we have more people with higher salaries. And of course, everybody is producing a cost then in his job. So from that point of view, it's pure capacity aspect. And the other thing is -- but it is fee level, but it's maybe not a bit we do some with the Wittenheim with the capitalization of the Wittenheim facility. And then, of course, we have some cost allocation systems. We did some changes here with the finalization of the Wittenheim facility. And with that, there was a little bit higher amount that is allocated to R&D, also contributing a few percentage points here. But all over, it's really a capacity point of view, investing more into the future developments. Nicolas, all good?

Yes, thank you. Perfect.

Yes, can you hear me?

Yes, I can hear you. Perfect.

Yes. So obviously, Europe and Germany were pretty good. I was wondering if you could expand on that as to why that was and how that sort of functions into appliances versus aftersales.

Yes. So I think we announced that Germany was all over very strong. Two major reasons why it was maybe even a little bit stronger was we had a quite weak previous year quarter. And on the other hand, we had good business in the aftersales market this quarter, which can come in waves and go down in the next quarter again. We would say, of course, a growth rate of 18% for a German market is something you would not expect, of course, in the longer term, even the 5% growth rate for the German market after 9 months is really ambitious for such a highly penetrated market. But sometimes it comes in waves. We had discussions. I was in the conference yesterday, discussions quite often on that. Sometimes -- just let me circle back to your other questions, and then we have explanation for that maybe. Also in Europe, we had strong development in most of the countries. There was no country that was really very weak. We had some very strong countries like the U.K., for example, or Italy, but there was growth in all the major countries. And if you ask then what is the reason? Is that the one reason? We can't say no. It's really a broad development. And sometimes you see it in waves, you have weaker years where you maybe, for example, you invest in new sales guys. And of course, they are not efficient at the very first day, it takes 6, 12 months, then they are getting efficient in the market, then they meet more customers, they visit the customers invite them to cooking live demonstration. These figures are going up and sometimes later, these customers buy a unit. But you cannot say whether the hiring new people will be showing up in higher sales figures in 1 year or in 2 years or 6 months. This is something we need to wait for and depends on the customers' plans. And that's why we say it's very, very important to continuously develop the sales organizations to increase the sales teams in a structured way so that we can fuel this growth story in the long-term view. But in a short-term view in single quarters, you never can say will this be that figure or that figure. So this is quite open. So from that point of view, that's a good news. So there is not the one reason. So like, for example, Asia last year with a big order and when the order is gone, you have a weak following year. So here, I think the basis for the growth is strong, and that's why we are confident that we will continue on this path also in the coming quarters. But whether -- again, back, whether this is the 10% for Europe or just, let's say, 5%, 6%, which we deem as something sensible to assume in the mid-single-digit area for such a market with comparably high penetration levels, this is the other thing. It could be in this range. And Lars again [ we could have you ] on the call.

I was shying away, but maybe -- I mean, please help me understand again why it's taking management so long to decide on the U.S. pricing. I mean you mentioned EUR 25 million of tariff headwinds for next year. Let's assume no major additional headwind from the U.S. dollar staying on the current level. You will have personnel costs increased -- personnel costs to EUR 70 million to EUR 80 million. So 2%, I don't know, EUR 5.5 million, EUR 6 million. That already brings us to a EUR 30 million headwind for next year, which is close to 10% of your EBIT. I mean, I would say it's a no-brainer that you need to increase prices significantly in order to secure the current margin level. What am I missing?

Yes, I would say as I said before, maybe this was before you were able to join the call. So we are in the middle of the budgeting process right now where, of course, there is a lot of cost discussions. And the first step at RATIONAL is always to start with efficiency measures, try to improve the efficiency to save costs. And we will see or we will get the results, I would say, in the coming weeks, and we have maybe already first figures there, and then there will be a decision on do we need additional pricing measures to come in a range, in a margin range that we would want to see in the end that we would accept. And so from that point of view, difficult to say, yes, why is that? I think we are not in a rush because business is developing well. Margins are on a good level. And I think there is no huge pressure for us now to react very short term. But you're correct, sooner or later, there will be a decision, and we will then announce it as soon as possible. Sorry for not having a better answer for you.

Can I maybe just ask -- sorry, I can't see who raised his hand. So go ahead. I'll just put me in the queue maybe.

In the end it's only you and -- you and me, Nicolas. So join us whenever you like, you're not disturbing anyone.