technotrans SE (TTR1) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to our webcast about the first 6 months of the financial year 2024. My name is Frank Dernesch, and I'm responsible for investor relations at technotrans. Together with me are the members of the Board of Management: Michael Finger and Robin Schaede. In today's webcast, we would like to focus on the following topics: the development in our markets, our financial performance, the progress of our strategy and the efficiency program ttSprint and the guidance for this year and 2025. After the presentation, the Board members are looking forward to answering your questions. [Operator Instructions] Please note that the following presentation contains statements on the future development of technotrans Group. These reflect the present views of the Board of Management; and are based on the corresponding plans, estimates and expectations. These statements are subject to certain risks and uncertainties which could mean that the actual results differ considerably from those expected. Now please let me hand over to our CEO, Michael Finger. Michael, the floor is yours.

Thank you, Frank. And a warm welcome from me as well. Let's start with a summary. The second quarter was strong and developed pretty much as planned. We remain on track. Despite a weaker economy, we've increased the profitability. EBIT margin in the second quarter was at 6.2%. If you look to the first half, revenue was at EUR 115 million. This is EUR 17 million less than previous year and mainly driven by the weak economy, but it is positive to see that we have lost only 1 percentage point in EBIT margin compared to last year and, as I said, with EUR 17 million less revenue. Energy Management remains the outperformer in our portfolio. Revenue increased by 26% compared to previous year. The demand from the market remains high in this segment regardless of the overall weak economic situation. And we are continuously winning new business. Following the promising contracts for charging infrastructure and liquid cooling for data centers which we have mentioned in our last webcast, we have won a large volume order for battery thermal management systems for e-buses, so this is really great progress for future growth. Our order backlog reports EUR 84 million, and the book-to-bill ratio is at 1.0. And this underpins our expectation for a solid business development in the second half of this year. Our efficiency program ttSprint becomes more and more important. We are consequently implementing our plan. We are on track and we have achieved all our milestones. This program will take out costs -- sustainable and will make us even more robust. Let's start to speak about our markets. The development of the majority of our focus markets in the first half of 2024 continues to be characterized by the weak economy, as I said. The outlook, however, remains solid for the second half. In Print, the weak economy, particularly in Germany, was noticeable. In addition, the expected reluctance to place orders in the run-up to drupa was confirmed. Accordingly, Print generated revenues of around about EUR 38.8 million. This was 14% lower compared to last year. After 8 years, we had another drupa. The drupa was a great success for the entire print industry and for us as well. On the picture, you see our booths. We could convince with sustainability and digitalization, which was also the motto from the exhibition. Our competence and new products with natural refrigerants were very well received, from the customers. We expect an upturn in revenue in the second half of 2024 in the Print segment. Reports from our major print customers about significant incoming orders at drupa underline our expectation as well. Let's move to Plastics. We have worked intensively on expanding our international footprint in this market. In May, we participated for the first time at the NPE in Orlando, the world largest trade fair for plastics processing industry. We presented the latest generation of our temperature control units with new features for the first time. In Germany, we presented our innovative systems at the KUTENO, an important regional trade show. In both exhibitions, we have been very successful in creating new opportunities and winning new business for temperature control units. A different trend was noticeable for large cooling plants. Following a positive trend in the first quarter this year, the willingness to invest weakened again in the second quarter due to the economy's -- continuing sluggish-ing economy. After 6 months, revenue in Plastics was at EUR 25.5 million, which is below our expectations, with a year-on-year decline of 15%. Laser continues to be most affected by the cyclical economy. Revenue was at EUR 21 million, down by 30% on previous year. The downturn has started already in the third quarter last year, as you know. And all our relevant customers are still on short-time work. In the last weeks, we saw a positive trend in order intake, and if the economy picks up, momentum is expected to increase in the remaining quarters in 2024 and in the following years. In Healthcare & Analytics, revenue in the analytics segment returned to pre-COVID levels, as expected. Demands for medical application is also showing an upward trend. However, the economic situation has a dampening effect as well. The revenue with EUR 6.7 million was with 4% slightly down compared to last year. Let's turn to Energy Management, our outperformer. The strong revenue growth continued, in particular due to high deliveries of cooling systems for rail vehicles and charging infrastructure. Revenue rose by 26%, up to EUR 16.6 million. Energy Management is becoming more and more important for technotrans. The share of group revenue is already at 14% and we are expecting further growth. As announced last time, we have expanded our product range for liquid-cooled data centers with a market-ready retrofit solution. We have won a major initial order in the single-digit million euro range and we are expecting more to come, but another highlight are e-buses. We are developing this area already since a couple of years, but the breakthrough took place this year. We won a major order for series production for battery thermal management systems. This is a milestone for our market positioning in Europe. The high level of interest in our products was also evident in the Battery Show in Stuttgart in June, where we presented our state-of-the-art solutions for special vehicles as well. So to sum it up. The economic situation remains weak, especially in Germany, for most of our markets, but the order momentum, especially in the last 2 months, has picked up. We are winning important projects for future growth. Now with that said, please let me -- over to Robin. He will show you [ how that turns ] into results. Robin?

Thank you, Michael. And good morning from me as well. Let me walk you through the financials in more details. As we have seen before, the weak global economy continues to impact our key financial KPIs. However, we have seen the expected improvement in our business in Q2 compared to Q1. Consolidated revenue, as seen before, for the first 6 months was EUR 115.3 million, which is a decline of EUR 17 million or 13% versus previous year. When we look on the development quarter-by-quarter, Q2 was EUR 3.2 million better than Q1, indicating that we have gained some momentum on the sales side. Q1 should have been the low point for this year. We are very happy with the EBIT in Q2. An increase of EUR 3.3 million versus Q1 brings us to a margin of 6.2% and back on track for 2024. The reasons for this strong increase are higher sales, an improvement of gross profit margin by 1.4 percentage points versus Q1, short-time work at several locations and strict cost management. If we look at the EBIT for the first 6 months, we can see a decline from EUR 5.9 million in 2023 to EUR 4 million this year. The main reason is the strong decrease in revenues. In addition, we have included one-off expenses of EUR 0.8 million in the reported EBIT due to the ongoing restructuring of the group. For clarification: All one-off costs were already booked in Q1, as we have outlined in our Q1 Webcast in May. EBIT margin for the first half year 2024 improved to 3.5% after 0.7% at the end of Q1. Without the restructuring expenses, EBIT would have been at EUR 4.8 million, and the EBIT margin at 4.2%. To sum it up. The first half of 2024 was challenging on the sales side. However, we were able to limit EBIT impact through the initiated countermeasures. Q2 was very promising. The expected improvement in performance kicked in, but it is also clear that we have some way to go in the second half of the year to reach our target. Thus, the momentum, especially on the sales side, needs to accelerate. Let's look at segments and the remaining financial KPIs. The Technology segment generated a revenue of EUR 86 million in the first 6 months, which is significantly down compared to last year. However, in Q2, we saw some improvement compared to Q1. While the focus market Energy Management continued its growth trend, the other focus markets suffered from the difficult overall economic environment, as Michael mentioned before. Segment EBIT decreased from EUR 3 million (sic) [ EUR 2 million ] to minus EUR 0.1 million due to a lack of economies of scale after the strong sales decrease. Short-time work at various production sites could only partly compensate for the shortfall. In addition, Technology carries EUR 0.4 million of the total restructuring costs. The segment's EBIT margin fell from 2% to minus 0.1%. The adjusted EBIT margin is 0.3%. Let's turn to Services. The economic slowdown led to a decline in revenue of EUR 1.8 million versus last year to EUR 29.6 million this year. Main reason was the weaker service business in Print, mainly in spare parts business. Also here we have seen a slight recovery in sales in Q2. Despite the weaker sales in the first 6 months, we have achieved an increase in our EBIT margin from 12.4% to 14.1%. The segment EBIT reached EUR 4.2 million, an increase of EUR 0.3 million compared to last year even though EUR 0.4 million of the total restructuring costs are included in this segment. Adjusted for this effect, EBIT margin is strong 15.2%. Main driver for this improvement is the increase in gross profit margin in our service business. Let's look at the additional KPIs. ROCE is 11.5%, compared to 12.4% in the previous year. As we reduced our capital employed compared to -- in last year, this development is mainly due to the lower profitability in the reported period. Free cash flow amounted to minus EUR 0.7 million, slightly better than in the same period last year. For both figures, we expect an improvement over the year as sales and profit increase and measures to reduce our working capital continue. Gross margin increased from 26% last year to 26.9%. As a reference: In Q1, we were at 25.5%. The improvement was mainly due to a higher share of service revenue in our total sales and a better product mix in the Technology segment. EBITDA decreased from EUR 9.4 million to EUR 7.4 million, in line with EBIT development. Consequently, net income was reduced to EUR 2.4 million. Accordingly, earnings per share decreased from EUR 0.48 to EUR 0.34. However, this is a significant -- this is significantly up from Q1, where we reported EUR 0.01. Equity ratio slightly increased to 57% compared to year-end 2023 and remained strong. Cash and cash equivalents decreased by EUR 9.6 million to EUR 13.2 million compared to end of 2023. Reasons are the lower earnings, scheduled debt repayment and the dividend payment in May. The lower cash position resulted in an increase in net debt to EUR 26.7 million compared to EUR 20.7 million on December 31. Net debt-to-EBITDA ratio increased to 1.39 compared to 0.98 at the end of the year, remaining on investment-grade level. The strong equity position, in addition to 3 credit lines, show that the company is financially strong and able to navigate rough times as, for example, in Q1 2024. Moreover, it's a solid base for our future growth. With this, I conclude the review of the financial figures for the first 6 months and give you an outlook of the second half of this year. You may remember this chart from our Q1 Webcast. Back then, we indicated revenues of EUR 58 million to EUR 64 million for Q2. With EUR 59.3 million, we reached this corridor. For Q3, we now project EUR 64 million to EUR 76 million; and for Q4 a range of EUR 66 million to EUR 79 million. This will bring us to our revenue guidance of EUR 245 million to EUR 270 million, which we hereby confirm. The uptake in the second half of the year will be driven by Energy Management, Print and Plastics. The order backlog, as well before, of EUR 84 million; and the book-to-bill ratio of 1 are a solid base for this development. Of course, as said before, we do know that we need some additional tailwind on the sales side in the months to come to achieve our full year targets. In line with this, also our profitability and cash flow will improve. To safeguard our profitability, we will continue to carefully manage our costs and CapEx, work on improving our working capital and execute the efficiency program ttSprint. Michael will now outline to you the outlook for 2024 and 2025 and the progress we are making on ttSprint. Michael, please.

Yes, thank you very much, Robin. A clear strategy and a sound business model are essential to be successful in the long term. We have both in place. As we are living in a world of uncertainty, we can't stop working on our models. In 2020, we have established our strategy Future Ready 2025. We have set a clear and ambitious target for a period of 5 years. The world has changed a lot since that time. Therefore, we've carried out a review in 2023. This is represented in the pyramid in the middle of the chart, as you can see. As a result, our strategy was confirmed in general, but we have adapted to the changed environment. To fulfill our short- and mid-term goals, we have incorporated the results of the review in the ttSprint efficiency program. These 3 work streams build on each other and they are all on track. In our efficiency program ttSprint, we have addressed 4 sub-projects. We will improve our processes and we will reduce our cost structure substantially on a sustainable base. As you know, we have kicked off this program at the beginning of this year. The expected earning contribution which we have outlined in our last call are becoming more and more visible. We are pleased to share some more details with you today. Let's start with our portfolio. We see a realistic margin improvement between 1.5% and 2%. This becomes more and more visible as we are winning new strategic volume business. The recently won deal in the e-bus sector is an important building block. With high volume and less complexity, we gain efficiency. In addition, we are optimizing our portfolio by improving our contribution margin, as Robin lined out. The focus is on our core business. The analysis on this is almost done. Divestments are possible as well. A [ key possible decision ] will be made this quarter. Another key sub-project is about our new market-driven de-central organization. We [ have explained this ] model in our last call. This will contribute at least by another 1.5% to 2%. We have started the transition into the new organization beginning of July. As a first result, we could already reduce our head count by 38 (sic) [ 83 ] since the beginning of this year; and further effects are possible until the end of this year. So these reductions are sustainable and -- as a base for our new structure in the next year. Further efficiencies should contribute by approximately 1% to our EBIT margin. Material costs have a main impact on our P&L. We have identified savings for material costs as well as synergies from the enhancement of our shared service centers. All of these measures will generate its full effect in 2025. And last but not least, we will generate up to 1% from our innovations. We see a strong demand for energy-efficient products coming from all of our markets. As energy efficiency is a key item in all our products, this trend is, for sure, in favor for us. Our development in hydrogen applications is making good progress as well, the same positive direction we can see in emission-free mobility applications and in our development for natural refrigerants. All of this will increase our competitiveness and is a base for profitable growth. So let me sum it up. All projects are on track. They are developing the planned profiting improvement. First effects, we can see already, but the full year effect is valid next year. Additional earning contributions from cost savings are already identified for the next year. The new, market-orientated decentralized organization is proceeding according to plan. Restructuring expenses of around EUR 0.8 million are already included in the first half of this year. Our expectation for the full year is around EUR 1.5 million to EUR 2 million for restructuring costs in this year. You see we are making progress and we are moving forward. Our way forward is supported by concrete actions on the top line, with the new volume business we are winning; and on the bottom line, with consequent improvement of our cost structure. This will help us to be even more competitive and to achieve our goals. That leads me to our guidance. Let's start with this year. The picture is unchanged. The weak economy in the first 6 months is reflected in our markets Print, Plastics, Healthcare & Analytics and especially in Laser. We expect to see an increasing momentum in the second half of this year. The reports from our major print customers after drupa are an important indicator, to name one example. Despite the economic situation, we expect continued strong growth in Energy Management. This is also underpinned by new programs which we have won. At the same time, we have improved our efficiency. This motivates us to confirm the guidance for 2024. We expect to generate revenue between EUR 245 million and EUR 270 million with an EBIT margin between 4.5% (sic) [ 5.5% ] and 7.5%. ROCE is expected to be in a range between 14% and 16%. As I said earlier, all measures from ttSprint will be fully effective in 2025. That leads me to the mid-term outlook. Together with the dynamics in our markets, we are convinced to generate revenue in a range between EUR 265 million and EUR 285 million in 2025. The outlined efficiency program ttSprint is a key driver for our future profitability. As we are making good progress, we are also convinced to achieve our margin target of minimum 9% next year. We have delivered as expected in the first half of this year, and we will deliver as expected in 2024 and 2025. We have a clear strategy supported by our efficiency program. Our employees are highly motivated by the new structure. This will make technotrans even stronger and more resilient. And with that said, I would like to open the Q&A session. Thank you very much. Frank, please open the lines.

So the first question which is coming is -- in is by Mr. Augustin.

Can you hear me?

Yes.

Yes, pretty well. Thank you.

Very good. So the first question is actually on the service business and, let's say, the progression. We had a very strong margin in Q4 '23; a lower margin in the first quarter '24; and now again a really, really high margin in the second quarter '24, so how should we view on that? Is that -- do we need to get used to this kind of volatility? Or what is behind the [indiscernible] in Q2? And how should we look at the second half?

Thanks for this question. The service margin, if you look back for a longer period of time, was always stable on a level between, let's say, 13% to 15%. We had a dip in last year, as you have mentioned. And that was mainly driven by contracts and mainly also driven by the strong material price increases from our supply chain, and we anticipated that. And we also forecasted last year that this will be done finally by end of last year, which was the case. And for the future, you can expect the historical range between 13% and 15%. And this should be stable for the rest of the year, so we see no further breakdowns at the moment. And we are back on track.

Okay. And what is actually then the cause for this volatility, let's say, between the first quarter this year and the second quarter?

Well, I think the quality of the service business was pretty well. Sometimes you have some warranty and quality costs to fix. This is affecting margin, for sure, but in the second quarter, service business came in very strong.

Okay. The next one is actually on Energy Management. I -- and if I saw that correctly, the second quarter sales volume in Energy Management is quite good, with a good growth rate. And you mentioned, let's say, the big orders in e-buses, some in the charging part and then also on the data center side, so if we go forward -- and this is actually a bit of spillover to the order intake question I have. We have seen profit warnings from more or less every larger charging company this quarter, be it Kempower, be it Alfen, whatsoever. Everybody is more or less taking back its assumption, so will you be somehow affected? And has this affected maybe your backlog? And where did all the orders come from in the second quarter? Because I see that your backlog increased from EUR 73 million to EUR 84 million in the second quarter. Is this already all from Print, or is there not Print in there yet? How do we need to look at the different cornerstones in Energy Management and all the rest in the composition here?

Yes, good question again. So the -- we also saw the downturn in charging infrastructure driven by all those discussions around e-mobility in Germany and in whole Europe. We also saw the warnings from the mentioned companies. The good thing is that we have a stable order base at the moment, and we are focusing on intelligent charging infrastructure. I have no crystal ball, for sure. I don't know exactly how -- if that also will affect technotrans in the second half of this year. At the moment, it looks stable, to be honest. We see the dip down, but our customers are also expanding its business in the U.S. market at the moment. And that opens up another opportunity and derisking the situation on just being on European market active, so we will see. At the moment, it's stable. We don't see any signals for our business which we have in production. The order situation is as scheduled, and we take it from there. Coming to the backlog development you have asked. And we spoke about a reluctance and an increasing momentum after drupa, for Print. For sure, one indicator was the positive announcement of all our big customers in that market area, but it takes always a while that these big orders are also placed in the supply chain and we see that visible. We saw some, but the overall audit -- order situation comes from various markets. We saw, especially in the last 2 months, increases from Energy Management again, for sure. From Print, it has picked up a little bit, but we expect more to come. We also saw slight increases in lasers; and a stable order intake, Healthcare & Analytics and Plastics, so overall it's -- as mentioned also in the speech, it was a stable order intake, a positive momentum we saw in the last 2 months. And we hope that this trend will continue. If so, that will help us pretty much in also developing our business.

Maybe a small follow-up here. If you look on your budget in -- for Energy Management sales this year, is it fair to say that, more or less, everything [ you need ] is already in your backlog?

Yes -- well, for Energy Management, we still expect orders to come for this year. We have -- if I look to the budget, that may be a good assumption. We are on a good way, but we expect more orders to come. Next one coming in is [ Johannes Reese ].

You can hear me now, yes...

Yes...

Yes. Thank you.

Okay, you can hear me. Great. Maybe also some follow-on question first on the energy management sector. You've got these nice orders in e-buses and data centers. If you look to your pipeline, you mentioned you expect more to come -- what you're seeing, especially also for next year. As a follow-on, maybe orders in both sectors, which are very interesting sectors, especially data center. [ So of course, that ] definitely -- should bring maybe the energy management sector, in foreseeable future, to the largest part, maybe largest business of technotrans. Is it a realistic assumption?

Yes. We don't disagree on that. If you'll look to the development: When we have kicked off our Energy Management business in 2020, we have started almost sort of [indiscernible]. Now Energy Management represents 14% already from group revenue. And by those strong growth rates, it's a question of time when it will step up to the biggest segment for technotrans. If you ask about the orders and the importance of the orders in strategically important market segments like electromobility, especially e-buses; and data centers: So as I mentioned, e-buses, especially for cities, this is a trend which can't be stopped. Every single city in the world will start checking if they can't move to e-buses from [ combustional ] engines -- and just to reduce also emissions. And we won a very important, big initial order, as announced, for one of the leading European e-bus manufacturers; and this will spread across Europe. And we expect, for sure, more to come, as they are very successful on this market segment. For the data centers. This, we've discussed also a couple of times in the last calls. This is like a gold rush in North America at the moment. Everybody is jumping in, discussing forwards, backwards with artificial energy and cryptocurrency, et cetera. It looks like a completely new exploring and exploding market, but the devil is in the detail. It's -- now it's important to fulfill the specifications, and they are changing every single day. The [ inflation ] point, from a lot of analysts and reports which you have seen already, which was projected for 2025, I think it's moving a little bit, but the growth will come, definitively. It's a question of time when this data center segment is going through the roof. And it's -- obviously it won't work in the future just with air cooling. The industry, the projects, the specifications for data centers, they need fluid cooling; and that's what we can offer. And even if it will stay at air cooling: We are delivering air cooling for the data center industries in 10 years -- but just to focus again back on liquid cooling. This is the future, and we are in good shape at the moment.

Great. A follow-on. [ This ] e-buses customer is maybe an exclusive contract. Or you can also maybe have other large players to your customer list. Is that possible?

Yes. So first part of the question is we are single source on this business. That's one topic to mention. And we have no exclusivity with this customer. And we can also add other customers, which we done -- we have done already. This was the biggest, but we have also other small customers and small initial progress we are working on to expand our business in that area. And as you know, it takes a while. We are on those programs since years. You need to get one -- first initial order to get the breakthrough. This was done now, same then in data centers last year. First, you spent 2 years of development into these areas; discuss specifications with customers forwards, backwards. And finally, you will make it. And in this case, we've made it.

And follow-on question. You mentioned in your maybe strategies the innovation part. You mentioned hydrogen, for example, and other things, but when will exist, the innovations you mentioned there; and maybe start order, to get revenue contributions? Is this already in '25, or is it maybe later on?

So as you see, we have addressed a couple of innovative programs. Hydrogen, we could have, generate already the first programs, but we'll try to -- we want to identify our sweet spot in this area. And that's why we spent some time and we have allocated a special -- a small team on this to work it out. And the first project is maybe end of 2025 but most likely beyond. The other ones are looking more promising, if -- more promising is the wrong word. They may be kicking in at a shorter period of time. Maybe already next, it was -- refrigerants are a key topic we are constantly working on. And energy efficient -- energy efficiency, to reduce energy, is a big part in all our products; and emission free, emission-free mobility. All -- it's all around those applications in every single customer discussion. Here we can see, for -- first results also kicking in next year. I'm sure I can report something out of those innovations in 2025.

Great, super. Maybe more yet on this year and the outlook. You mentioned you need some orders, some uptick in orders during the next months. When is maybe the last time these orders have to come in? What is maybe going through it? It's different from sector to sector, I think, but on average maybe, what comes in end of October? And could -- [ it still may get revenue and so forth ]. We need maybe most of these orders, I believe, in Q3 in order to fulfill your forecast...

Yes, yes, yes. So in average -- that's a fair assumption. Q3 -- end of Q3 is, for sure, for most of the programs, the deadline to be capitalized in this year. Everything beyond, especially for big cooling plants, et cetera, will not get materialized in 2024. And it will move to 2025, but it depends. As I said, if it's volume business, if it's with less lead time in the production, we can squeeze it in, in Q4 also at short notice. As more complex the orders, the more we need to industrialize the production, the longer we need.

But it's clear, if I -- maybe to repeat what -- your answer to Mr. Augustin questions. June and July, you saw a clear uptick in orders...

Yes.

Okay. Short -- what's pricing -- there was a slight increase in prices. Is that something we could also expect going forward? How many -- what is possible at the pricing side? I think it's harder in an environment where you have to fight to get [ the volume well ].

Pricing is always difficult. It's always difficult to get higher price on customers. That's always the case, but we really try to do our best in that area. And it's [ finally ] about value and about being fair with -- and transparent for -- in those discussions. And the pressure to reduce the prices, that's no secret, yes. It was the case. Every customer want to reduce prices. And they have addressed that to us as well, but we will defend. And we will -- we are still value pricing on our programs.

Okay. Latest -- or the last question, regarding divestments. Are there other projects which -- on one of your -- part of your strategy that you also will focus on. [ Maybe there weren't others ] you could divest. Are there concrete things going on that we maybe can expect in the next 6, 9, 12 months? Any steps as you also maybe divest some of the noncore businesses?

Well, I think we are almost done with the analysis. As I said, we'll make a decision of our noncore business going forward this quarter. And once we have made the decision, we will execute. So if we'll -- if are thinking we need to divest or it's no longer a core business and it's worth to -- also to sell, we will start this transaction. And if it goes fast, we can see effects already in this year. So if I look to the tool and to the screen, I see no further questions. Maybe I'll give you another second. So it looks like that it's not the case. Then thank you very much for participating. Thanks for your questions. As you know, our webcast, our next one, for the 9 months figures will be on November 19. And for sure, we are looking forward to welcoming you on that webcast as well. If there are any questions in the meantime, please call us as usual anytime. And also on behalf of my colleague Robin Schaede, I would like to thank you for the interest in technotrans. And I would like to thank you once again. Take care. Speak to you soon. And see you. Bye-bye.

Bye-bye.