Stadler Rail AG (SRAIL) Earnings Call Transcript & Summary

Dear sirs and madams, member of the press and analysts, warmly welcome you to today's press conference on Stadler Rail's Half Year Results 2025. On behalf of Stadler, I would like to welcome Group CEO, Markus Bernsteiner; and Group CFO, Raphael Widmer. They both will present the half year results to you. You can also follow the presentation via the web stream. Afterwards, the Group CEO and CFO will, of course, be available to answer your questions. My name is Marc Meschenmoser, Head of Group Communications. I'm looking forward to guiding you through this event. [Foreign Language] I will now pass the floor to Stadler Group CEO, Markus Bernsteiner.

[Interpreted] Thank you very much, Marc. Dear media representatives, analysts, I would also like to give you a warm welcome to the presentation of Stadler's half year results. Before presenting our key figures, I would like to show you where we are coming from. As you will know, in the financial year 2024, we were hit hard by devastating natural disasters in the [ count ] of Valais, in Lower Austria and in Valencia. These pictures were quite striking, and the flooding events had major effects on production and supply chains. We immediately took measures in order to mitigate the consequences, and these measures are effective. We have in part been able to catch up, and mainly, the event in Valencia, however, still has a negative impact on the financial result. The negotiations with the insurance companies are still ongoing. Furthermore, the weak economic development in Germany continued to have a negative impact on our business. In order to secure the competitiveness and the production sites of Stadler Germany in the long run, Stadler is putting into practice an extensive structural and efficiency increase program. Also here, we've achieved the first results in April, a future orientated collective bargaining agreement for the Pankow factory was signed with the trade unions. This contract guarantees operations until the end of 2031 and guarantees employment until at least the end of 2029. In return, the employees make a contribution and work 40 instead of 38 hours per week. Furthermore, we implement measures to increase the operating performance over the entire value chain, reduce lead times in production, simplify processes and reduce costs because we want to give Stadler a long-term, economically stable foundation. Also in global politics, a lot happened over the past few months. On the 5th of August, U.S. President Trump imposed 39% import tariffs on Switzerland. Stadler is not extensively affected by this because we've been running our own factory in Salt Lake City since 2016, with which we meet the requirements of the Buy America Act, which says that in orders with public funding, at least 70% of the value creation must be generated in the U.S. Currently, we have local value creation of 70% to 80%. Of the remaining 20% to 30%, the major part comes from the EU, where we have customs tariffs of 15%. Furthermore, Stadler has included contract provisions protecting the company against part of the extra costs incurred. As we saw major growth in the North American market, we decided back in 2023 to double capacity of the Salt Lake City planned and to build a [ car body ] production there. The first welding [ theme ] was applied at the beginning of the week there. And this can again lead to an increase in our value creation in the U.S., which leads to lower tariffs. This brings me to the key figures for the first half year 2025. As you can see, we were able to stabilize the business in a challenging environment. Important key figures have improved, which shows that the measures taken have had a positive effect. In the first half year 2025, we were able to increase our revenue by over CHF 100 million to CHF 1.4 billion year-on-year. The production output is almost CHF 1 billion higher than the half year revenue, thanks to our conservative revenue recognition approach, and the revenue will increase strongly in the next few years. The group result is 12% higher than in the previous year's period. It is now at CHF 30.9 million. We were able to increase our EBIT margin by 0.4 percentage points to 2.6%. The gross margin is at 11.6%, which is comparable to the previous year's period. Stadler has furthermore been very successful in the market. We won orders in the magnitude of CHF 1.7 billion and have just been able to increase our order backlog by another CHF 200 million to CHF 29.4 billion. This shows that with our broad and innovative product portfolio, we are very well positioned. The free cash flow, the net working capital and the net cash position values will be explained by Raphael Widmer later on. What I'd like to underline is that we are a globally attractive employer, that we have created lots of highly qualified jobs. In these past 6 months, we created about 1,600 jobs. Thanks to the good order book situation, the number of employees has thus increased to almost 16,600. In Switzerland alone, we have 5,600 employees. This brings me to the segment overview, an overview of our 3 reporting segments. With a 72% share of the order backlog, the Rolling Stock segment continues to be the biggest segment. We stand for innovative and durable quality products and have the widest product range in the industry. When it comes to alternative drive systems with battery and hydrogen trains, we are the global leader. No other manufacturer sells more environmentally friendly trains with alternative drive systems than Stadler. In passenger trains, we have a strong #2 in Europe. The Service & Components systems have grown strongly over the past few years and contributes almost 26% to our total order backlog. The Signalling segment is also growing strongly, which is strategically very relevant. We are now independent from our direct competitors as supplier. And we can offer our customers tailor-made solutions in all signaling areas. I would now like to give you some further insights into our 3 segments. In the Rolling Stock segment, we've been able to increase our revenue by 9% to CHF 1.1 billion. In the first half year, we sold 133 vehicles, with auctions for another 61 vehicles. The order intake amounted to CHF 1.4 billion. The order backlog of this segment is CHF 21 billion. Of the orders won, I would like to present three here. In March, Austria's WESTbahn ordered 3 SMILE high-speed trains for the Vienna-Graz-Klagenfurt-Villach section. After a record production time, the trains will already be running as from March 2026. In May, we received the prestigious order to supply and maintain 7 FLIRT trains for operations between the Swedish Airport of Arlanda and the Stockholm main station. In the tailor-made business, we were able to sign a contract for 8 rack railways for this spectacular trip up to the [ Roche ] at Lake Geneva. As I have mentioned, we are the technology and market leader in the field of alternative drives. We are able to constantly strengthen this position. In Europe alone, 50% of all alternative drive trains come from Stadler. Until mid-year, we had sold more than 300 battery or hydrogen trains, with an option for another 204 vehicles. Many of these trains are already running successfully on a daily basis. Also in the first 6 months 2025, where we're able to win additional orders. DB Regio ordered 19 battery electric FLIRT Akku trains for the Central Thuringia battery network. And for [ France ] we should soon be able to build 8 hybrid meter gauge trains. These environmentally friendly vehicles replace existing diesel vehicles. And thanks to Stadler technology, the CO2 emissions are thus massively reduced by up to 77%. We will continue to focus a lot on alternative drives and press ahead with that with a lot of innovative power. And this brings me to the Services & Components segment. Apart from the maintenance contracts with Arlanda Express that I already mentioned, we won orders in the Czech Republic, Poland and Switzerland. Also in the Services & Components segment, are we able to report solid revenue growth of 17%. Revenue has increased to CHF 270.7 million. The order intake in the first half year 2025 reached a total of CHF 263.8 million. The order backlog in the services business has thus increased to CHF 7.8 billion. And this brings me to the Signalling segment. The division Signalling mainly supplies other Stadler divisions, and we only report revenue generated with third parties. Compared with the first half year 2024, we were able to strongly increase the order intake by 57%. Revenue was at CHF 21.9 million. Also in the Signalling segment, where we're able to reach some strategic milestones with our infrastructure components, we managed to enter the French market. And we also received an order from the Chemins de fer du Jura. They mandated us with the installation of next-generation interlocking stations at the Tavannes and Orange train stations. Furthermore, we are delivering train protection equipment for the expansion of the Tram network in [ Behegen ]. With this short review, I'd like to pass the floor to our CFO, Raphael Widmer.

[Interpreted] Thank you, Markus. Ladies and gentlemen, I would also like to welcome you to today's conference call. I will now lead you through the financials. Let me start with an overview. The order intake in the first half year was CHF 1.7 billion, and thus lower than last year, but we expect additional bigger orders for the second half year, and we do assume that we can reach our communicated strategic target for the financial year 2025. The order backlog is CHF 29.4 billion and has slightly increased since the end of last year. The revenue increased to over CHF 1.4 billion, which is a record for the first half year of [ a year ]. The EBIT was CHF 37 million, which corresponds to a margin of 2.6%, and that is 0.4 percentage points more than in the same period of the previous year. The net cash went down by CHF 775 million to minus CHF 407 million. At the same time, the net working capital went down CHF 720 million to minus CHF 291 million. This is related to the strongly increased production output, resulting in more work in progress. CapEx increased to CHF 120 million. The free cash flow is minus CHF 744 million. And for the second half year 2025, we expect a balanced out free cash flow. Let me now come to the order intake. At CHF 1.714 billion in the first half year, the order intake was lower year-on-year. It is difficult to plan ahead regarding the order intakes, but -- and order volumes can be very big, but we confirm the outlook for the full year. The order intake for Rolling Stock was CHF 1.4 billion; for Services, CHF 264 million; and for Signalling, CHF 52 million. The strongest markets, geographically speaking, are the German-speaking countries and Western Europe. Let me now come to the order backlog. At the end of the first half year, the order backlog was CHF 29.4 billion, with a high Services & Components share of more than 26%, which gives us good revenue visibility and stability for the future. The strong order intake will lead to further investments. Let me now talk about revenue. Revenue in the first half year 2025 increased year-on-year by 8.4% to CHF 1.402 billion, including negative FX effects of 1%. Revenue in Rolling Stock increased by 8.9%. The negative currency effect was almost 1%. Revenue in the Services & Components business increased by 16.8% despite a negative FX effect of 1.1%. The revenue in the Signalling business was down 48% with a negative FX effect of minus 1.1%. And here, we expect to catch up significantly in the second half year. And this also explains our production outlook. The production output is revenue added to the gross volume of work in progress. The production output in the first half year 2025 exceeds revenue by CHF 930 million and reached CHF 2.332 billion, which corresponds to an increase of over 18% year-on-year. So we had massively higher output than the revenue because of the conservative revenue recognition method. Stadler mainly uses the units of delivery approach in the scope of the POC method, meaning that vehicles only get recognized as vehicles once completed and accepted by the client. This means that between signing a contract and the generation of revenue and earnings, many years can pass, so revenue and margin are significantly lagging behind the operating output. This method is a conservative one and leads to a later recognition of revenue and profit compared to our competitors. Let me now talk about production output versus revenue. This conservative unit of delivery method, in combination with the long execution cycles, leads to the following pictures. Since the year 2021, we've had annual order intake of CHF 5.6 billion to CHF 8.6 billion. And this is always significantly higher than the revenue generated in the same year. So there's always a lag of several years between order and revenue. The production output, defined as annual revenue plus gross volume of change in work in progress, that starts much earlier to show an increase. So vehicles are built, and after production, they are delivered to the customer. And in the year 2024, we had a year with a strongly increasing production output and low revenue according to units of delivery. So if you use the cost-to-cost method, revenue for the year 2024 would be CHF 4.2 billion. The same holds true for the first half year 2024. According to cost-to-cost, our revenue would be CHF 2.3 billion. Because of this situation, we expect a significant increase in revenue in the years 2026 and '27. In the year 2025, we expect revenue to increase compared to 2024 by significantly over 10%, and in 2026, an increase to significantly over CHF 5 billion. And for the planned revenue of the year 2026, we already have 95% in our order books for 2027, it's already at over 80%. Now our EBIT. The EBIT amounted to CHF 36.9 million. The margin increased to 2.6%. However, it continues to be negatively influenced by the negative weather events in the year 2024. The EBIT margin for the first 6 months is never very telling because of our conservative revenue recognition method and the mix of orders. As we usually deliver more vehicles in the second half year, we also recognize higher revenue in the second half year. It's usually 1/3 delivered in the first half and 2/3 of the revenue recognized in the second semester. And now a short comment on the net income. The group result amounts to CHF 30.9 million. The tax burden is higher. The FX effects in the financial results were positive. I would now like to talk about the cash situation. Let me start with the net cash position. The decrease of the net cash position was mainly due to the fact that in the years 2023 and '24, high downpayments for orders were recognized, which are now being used for producing the product. So we invest the downpayments in vehicle production, which, technically speaking, has a negative impact on the net cash position. And here, I'd like to refer back to my comments regarding the production output. Together with the investments of CHF 120 million, this leads to a strong reduction of the net cash. And furthermore, we also pay out a dividend in the first half year. The merit image of the net cash position is the net working capital. The net working capital has strongly increased because of an increase in work in progress. However, it remains negative. Negative net working capital is a positive thing because it means that our orders in general can be financed by downpayments, not by banks. In the second half year, I expect the net working capital to decrease again, which would be positive. Now a few words on the long-term net working capital evolution. In the years 2016 and '17, Stadler received orders of high downpayments, combined with milestone payments from ongoing orders that led to a strongly negative net working capital. In the years 2018 to 2020, the downpayments were used up to produce the vehicles. And in addition, the COVID period made it impossible for customers to take over vehicles, and the result was a significantly positive net working capital. As from 2021, the situation turned around again. The negative COVID effects were caught up. And furthermore, we received good downpayments from new projects. And we also received milestone payments from ongoing orders, and the net working capital turned strongly negative again. In the long run, we expect a slightly negative net working capital with fluctuations over the cycle. So we have very long cycles, which is not very -- which is why it's not very telling to look at just 1 year. Now a few words on capital investments. We have mainly invested in the expansion of capacity in Spain, Hungary and the U.S. The high order intake leads to additional investments in our factories so that the capital investments in the year 2025 will remain at a high level at CHF 250 million approximately. And the investments in intangible assets mainly come from development activities for locomotives, alternative drives and signaling systems. I would now like to pass the floor back to our CEO, Markus Bernsteiner.

Thank you very much, Raphael, for your explanations. As we have heard, we have again been very successful in the market and were able to further increase our order backlog. This was thanks to our strong, committed and passionate team. And on the other hand, also thanks to our high investments in our innovative and very broad product portfolio. For the different market segments and geographies, we offer fitting products and solutions, and we are well positioned in the market. This in a very attractive and future-proof industry, as market development shows. The Rolling Stock market has a volume of EUR 60 billion. If you deduct freight wagons from that because they do not have strategic importance for us. then the interesting market volume for us is EUR 44 billion. On the right-hand side of the slide, you see the volume of the strategically relevant markets for us as China is the factor closed market, we need to deduct the Chinese market. And the relevant market volume is plus EUR 32 billion. This market has a forecast annual growth of 5.8%, which is a lot. Thanks to this promising situation, our focus is on the efficient and perfect execution of our orders. For this reason, we have for years been investing a lot in our factories and production technologies. The latest example is St. Margrethen in Switzerland. The factory has a high capacity utilization, but we want to be prepared should demand continue to increase. For this reason, we have taken the respective steps, and 2 weeks ago, applied for building permit for plant expansion. We intend to expand the factory surface by around 50%. We would just create several hundred new jobs. Whether we will actually expand the factory will strongly depend on the future order situation in Switzerland. As I've already mentioned, we are also expanding our Salt Lake City plant. At the end of the year, our new assembly hall will go into operation. And the factories in Spain, Poland and Hungary have also extended their capacities. We further optimize our business along 4 mid- to long-term fields of action. Firstly, the team is the foundation. With our talent program, we are countering the lack of professionals. The successful management and leadership and development programs will continue to be expanded. Secondly, we drive ahead with innovation and digitalization in vehicles and signaling technology. We use new technologies to become more efficient and to improve our products. This is the precondition in order to be successful in the market in the long run and to continue to win orders. Thirdly, when it comes to revenue and order intake, we focus on a selective participation in tenders, meaning that we thoroughly consider under what conditions we submit a bid. We furthermore want to profitably expand our Services and Signalling business. And fourthly, in operations, we focus on an efficient execution of orders and a reliable delivery on time. For this, we bank on consistent cost and milestone control. We accompany our suppliers closely in order to make sure they deliver on time and that we can deliver on time. We furthermore invest in our production technologies and reinforce the factory network. Stadler is organized in a decentralized way, and we will continue to have such a decentralized organizational structure as it offers lots of advantages. At the same time, efficient cooperation within our global structure is of key importance. This is the key to increase group-wide productivity and at the same time, reinforce our ability to adjust and innovate. This is why we have a clearly defined plan for the further interconnection of our sites. A key element here is the introduction of '26 guidelines which are the basis for binding standards. Based on that, we are currently harmonizing our group-wide key processes, particularly in sales and order execution. This harmonization is the precondition for the gradual introduction of a uniform system and application landscape, meaning that we are strongly reducing the number of IT systems used. For certain work, we, in the future, want to use the same system group-wide, which is currently not always the case. The rollout has already started. We are currently implementing new systems in the Swiss division. As you can see on the right-hand side, we furthermore make targeted investments in our production technologies. With the digital checks, we take pictures of car body components and use computer algorithms to check them for quality defects. We also digitalize our plants. New technologies make it possible to make the production progress visible in real time. With this and other measures, we increase the quality, efficiency and sustainability of our production and thus make a future-oriented production possible. This brings me to the outlook. I am going to present to you now, the expected development of the key financials. Because of our strong market position, Stadler confirms the communicated outflow -- or the outlook communicated when the annual figures for 2024 were presented in mid-March 2025. So thanks to the strong order backlog and a good position in the market, we expect a significant increase in production output in the next few years. In the midterm, we expect the book-to-bill ratio to be on average between 1 and 1.5. The book-to-bill ratio describes the ratio between new order intake to previous year's revenue. Furthermore, for 2025, we expect an increase of the net profit of significantly over 10% compared with 2024. In order to handle the increase in production output, Stadler invests in the ongoing business year, around CHF 250 million in production capacities. And in the next 2 years, it will be around CHF 200 million each. Furthermore, Stadler expect solid downpayments from new orders and improved payment conditions for the ongoing orders. Assuming stable supply chains and a successful effect of the measures taken, Stadler expects revenue to increase and also EBIT -- the EBIT margin to increase to between 4% and 5% in the year 2025. The financial year 2026 will show a significant revenue increase to significantly more than CHF 5 billion. Stadler continue to be convinced that under constant global framework conditions, an increase of the EBIT margin to 6% to 8% remains realistic in the mid- to long term. And the dividend policy, with a payout share of around 60% of the group result, this dividend policy is confirmed. This brings me to the end of my presentation. We are proud that after the externally caused adversities last year, we've been able to quickly stabilize our business. The size of key figures show a positive development and the measures taken have an effect, and we will continue to consistently put these measures into practice. With our wide and innovative product portfolio, we are very successful in the market. So we are well positioned in a future-proof and growing rolling stock market. Furthermore, in the field of alternative drives, we've again been successful and have thus further reinforced our market and technology leadership. I am particularly proud of our strong team. Our employees do their best every day in order to build the best rolling stock in the world. We always find a solution for challenges, and we are all ready to make a special effort any time. On behalf of the Board of Directors and the entire group management, I would like to thank all Stadler employees as well as all suppliers and business partners for their commitment and their trust. We are convinced that with our strong team, our product innovation and the measures taken, we are very well positioned in order to continue to be successful. Thank you very much.

[Interpreted] Thank you, Markus. We will now have a Q&A session. We will start with the oral questions in German and then have the written questions in German. Who can I pass the floor to? We have one question by [ Johannes Brinkmann ] from [ ABP ].

[Interpreted] So last year, because of the adverse weather events, you had to postpone CHF 300 million in revenue to the following years. How much of this have you caught up?

[Interpreted] Well, as I have explained, we were hit hard by the disaster in Valencia. In particular, CHF 350 million had to be postponed and [ 200 million production hours ]. And this effect continues and will continue into 2026. As you have also heard, the production output was increased by CHF 1 billion. The exact figures of how much will be shifted into the year 2026 is something that I cannot tell you right now. However, with the measures taken and the action plan, we are well on track.

[Interpreted] Well, but just an order of magnitude, is it 1/3 that you're shifting into 2026 or less?

[Interpreted] And Raphael, it may say, well, as I told you, the catch-up program is ongoing. Identifying the individual effect is difficult, but it is a fact that we are well on track with the revenue of this year. We also said that the effects will have been compensated by 2026-'27, but you can't really split that by year.

[Interpreted] May I ask you how much you lost because of the adverse weather events?

[Interpreted] Can you repeat the question?

[Interpreted] I didn't really understand how much EBIT did you lose as a result of the adverse weather events, the loss of EBIT this year -- in this first half year.

[Interpreted] And Raphael Widmer says, I've got the same answer here. This is all related to revenue recognition. And what is important for us is that all the measures taken have been considered in our financial planning, and we are well on track. So these effects were taken into account in our financial planning. The effects have been communicated, and we are now executing our orders.

[Interpreted] Thank you very much, Raphael. Another question by [indiscernible].

[Interpreted] I've got 3 questions. Firstly, that regards to your order pipeline, another 4 months to go. And I would like to know whether from today's point of view, you see order intake at 1.0x or 1.5x book-to-bill in order to give us an order of magnitude of the dynamics there? And the second question is, at the end of the presentation, you said you expect better payment conditions for ongoing orders. Can you explain that? How you [indiscernible] that? And the third question is whether you can quickly explain the strong increase of the profit to minority shareholders.

[Interpreted] Markus Bernsteiner says let me answer the first question. It goes rather in the direction of 1.5. And the second question, that has to do with the payment conditions for ongoing orders. So I can say that the downpayments that we are getting, that always depends on the order mix that we are executing. So there are no changes in payment patterns. But I can confirm that the payment plans, that we do not see any changes there. And regarding question 3 with the minority share, here, we had a major currency effect on a minority stake in an investment.

[Interpreted] Thank you very much, Raphael. This brings me to a question by Patrick Rafaisz, UBS.

[Interpreted] I've also got 3 questions. The first question is regarding the net working capital. Raphael, if I understood correctly, we will end this year with a positive net working capital, which is a big step towards your midterm target. Does that mean that as from 2026, with the planned production output, you will release capital again? Or will it continue to increase? That's my first question. The second question is regarding the expansion of the St. Margrethen factory. This potential expansion, is that already included in your CHF 200 million CapEx guidance? Or would that come on top? And what exactly does the expansion depend on? Are you referring to specific tenders here? And the third question, that's a detail regarding the financial result. The positive FX effect, can you quantify that? And how much was the interest cost here?

[Interpreted] Let me start with question 1. The net working capital will remain negative. It will not be positive. And that is a good thing. And for us, it is important that we can always make use of the downpayments from our customers to produce our products. And the output for 2025-'26, the production output will remain high. However, in the subsequent years, production output and revenue will be more and more equalized because this is now happening. And the net working capital will as a result, despite everything, remain negative.

[Interpreted] Markus Bernsteiner. Patrick, I would like to answer the additional question regarding the expansion of the St. Margrethen factory. So if we could press a button now and the excavators would start working now, we have a building time of 2, 2.5 years. So yes, we have budgeted the capital expenditure for the years 2026, 2027, maybe a little in 2028. So this is included in the planning. But of course, if we in Switzerland receive orders and produce them here, then we will be able to expand the factory.

[Interpreted] And one more question regarding the financial results. I mentioned this minority stake already where we suffered a major FX effect. It was a positive FX effect, but it's not the only FX effect. And it gave us some tailwind. On the other hand, you also need to say that the tax burden was higher than in the previous year.

[Interpreted] Then we will answer the written questions. We have a question from the [indiscernible], who asks, what do you say about the fact that the [indiscernible] lease new trains or the lease trains from [indiscernible].

[Interpreted] Well, they are one of our biggest customers. We are in constant contact with [ SPB ] and would be very interested in such orders. However, what we as Stadler Rail cannot do is lease out company. So this leaves out the trains. So the specifications that would be directly negotiated with [ SPB ] and the payment of the rolling stock would then go via a dedicated leasing company.

[Interpreted] Then another question by [indiscernible] regarding the statement that Stadler has a good capacity utilization and need additional orders in the next few years to secure jobs in the long run. Can you explain that, CEO Markus Bernsteiner?

[Interpreted] Yes, Markus Bernsteiner says yes Stadler Rail has a very good capacity utilization. We have invested a lot in production capacities. The orders take years to be executed. If for instance, you win an order today, it can take up to 5 years until we have finished production of the vehicles until the last vehicle has been delivered. So on the one hand, we have a very positive order intake order backlog with CHF 29.4 billion. This is all planned as capacity utilization. So we do have planning, but of course, we also always have potential for new orders.

[Interpreted] Then a next question by [indiscernible]. How much is the Swiss franc amount by which you will be impacted by the U.S. trade tariffs in the year 2025?