Wacker Neuson SE (WAC) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. This is Christopher Helmreich speaking, of Wacker Neuson Investor Relations. Thank you very much for dialing in. Welcome to our fiscal year 2020 conference call. With me in Munich is Kurt Helletzgruber, CEO and CFO of Wacker Neuson; and also Alexander Greschner, CSO of Wacker Neuson. Over the next 20 minutes, Mr. Helletzgruber and Mr. Greschner will present the results of fiscal 2020. They will explain our strategy 2022 actions of the past fiscal year and what we are ahead, and they will provide an outlook for fiscal 2021. You'll have the opportunity to ask questions right after the presentation. Please note that the entire call will be recorded. The presentation slides can be found on our website, wackerneusongroup.com/investorrelations or via the webcast, which you can access via the link sent to you in the invitation e-mail. Thank you. I'd like to hand over now to Mr. Helletzgruber.

Yes. Good afternoon, ladies and gentlemen. This is Kurt Helletzgruber speaking. I would also like to welcome you to our 2020 conference call. Since it is the first time you are hearing from me in my role as the Chairman of the Executive Board, please allow me to begin with a few brief personal words. For the last 13 years, I have been member of the Supervisory Board, and due to certain reasons last year, the Supervisory Board asked me to take over the role as CEO and CFO for a certain period. As you most probably have seen in our press announcement, we have already a successor for the position of CEO, Dr. Tragl. He will start on 1st of June this year. And we all feel, the Supervisory Board and the Executive Board feels that we found the ideal person for his position. He's an internationally experienced top manager with the best knowledge of the mechanical engineering industry. And I'm absolutely convinced he will bring our group forward in many respects. Recently, he served as CEO of Diehl Group, a German group; and previous position, he also stayed for 16 years with Bosch Rexroth, and 6 years he had the role of CEO in Bosch Rexroth. So he also knows our industry from the other side, from the side as a supplier to construction machinery. My colleagues on the Board and I, we are very much looking forward to working with him. First, now let's look back in 2020. 2020 was an extremely challenging year in many ways for the Wacker Neuson Group, our customers, employees and also our suppliers. And it has cost us a lot of energy. Still, unfortunately, we had to interrupt our long-standing growth trend. And our overall revenue dropped by 15% in 2020. However, all signs are pointing towards renewed growth in 2021. If you look at the regions, we have a very different -- yes, very different picture. In Europe, our drop was only 6% in turnover. In U.S., Americas area, we had a drop of 41%, and we suffered really a tremendous decline in 2020. In Asia Pacific, we had minus 12% turnover. Within Europe, in the DACH region, we were able to even increase our turnover a little bit, but still on an overall, we had a 6% drop. If you look at the next slide, it's [indiscernible] fourth quarter, and it shows us the year 2020. I think the fourth quarter is not so important anymore. But for the full year, we had a turnover of EUR 1.6 million and an EBIT margin of 4.7%. The EBIT margin is unfortunately, let's say, half of it has been in 2019. So we had a drop of about 50%. But also due to certain things, certain allowances which we built for doubtful receivables in the region Americas, which comes to roughly EUR 33 million. On top of it, we also -- due to the COVID-19, we have written down the goodwill in the U.S. The negative effect of this has been EUR 9.2 million. And in addition, we had approximately EUR 9.1 of one-off expenses due to our efficiency program. So that the last quarter with an EBIT margin of 0.5%, and the total year has been affected quite heavily. The positive point, that we had a free cash flow of EUR 329 million in the year '20. Maybe you recollected in '19, we had a negative cash flow. So it has a tremendous -- for the free cash flow, it is a tremendous success story. We reduced our net working capital, and we have a goal of 30% at the end of the year, and we ended up with 31%, which is -- I would say, which is a great figure. And we also want to keep this figure for the future. Yes. Once again, to our net debt, at a very, very low level. Our net financial debt is around EUR 138 million, which at the end of the year of 2019 amounted to -- sorry, 2020, we reduced it by around 69%, our net debt from 2019 to 2020. And at the moment, we have EUR 150 million net financial debt, which is, as I mentioned already, 69% less than the year before. On basis of our very strong financial position, we proposed a dividend of EUR 0.60 per share. And we also announced a program of buyback of our shares up to a volume of EUR 53 million, which comes to maximum 3.5% of our share capital. We will -- it's a program which we launched because we want to use the shares for 2 different things. One, it is a participation program for our employees. And one is for all kind of merchant acquisition where we still will act very, very cautiously. We don't want to acquisition for the sake of acquisition. But we feel that we have certain areas where we could -- or certain segments where we could do acquisition, which helps us in getting our goals. Yes, for the dividend, I have to say, it seems to be quite a high dividend for the result of 2020. But as you know, we didn't pay any dividend in '19. So if you have to take more or less 2 years together for a dividend of EUR 0.60. And I think it is a very realistic figure. For the moment, for the next slides, I will hand over to my colleague, Mr. Greschner, for our strategy and focus points.

Good afternoon also from my side. This is Alex Greschner here in Munich. I would like to take you a little bit deeper into our status on the strategy 2021 -- '22, sorry, that we introduced in March 2018. We are continuously reporting on this also in this call, and I will give you the closest updates, maybe most important on the bottom of this slide, they recognize the 5 circles. These are the targets that go with the strategy. And Mr. Helletzgruber mentioned before, the revenue and EBIT side, we got a, let's say, a hit due to the COVID year 2020, which leads at the end to a, we could call it, a postponement of the strategy results by 1 to 2 years. On other topics, like to become top 3 with the core products, we are working. We did gain market shares last year in many markets, which means we are growing faster than the market, and we could gain position and net working capital all on the right side with 30%. Well, we could be there. But obviously, we need to be able to hold this level as well or even improve by a growing revenue over the next years. I will take you now a little bit into the 3 pillars that you see. On top of the slide in the triangle, focus is one, acceleration and excellence. These are the 3 pillars that are the base and that our strategy is built on. And on the next slide, you see some updates in regards to focus. What do we mean with focus? That means for us, really, we do what we are best in. We work on our core products as our core services. And whatever we do, we try to do it best. We ask us, in everything on a make or buy, if it's development, if it's production, if it's selling, we don't have to do it all ourselves, we need to focus and become better on our best things. What did we do? Some of it started earlier on the top left, when we speak about streamlining the organization. You may remember that already last year or in the end of '19, we reduced our production facilities from 10 to 7 to really put that natural economy of scales together, also to really gathering the R&D competence in these centers. During the last year, we focused a lot on the adjustments of our sales structures, Latin America and north of Europe in Scandinavia, where here, really main target markets. Latin America, basically because, yes, we had to admit that we have to work, and we want to work with external distribution partners that we know from our past activities already. We had to admit that our own operations couldn't grow any more profitable in these regions as depending on the limited market sizes for our product spectrum. This will come at some point. South America will also be deeper in compact and light equipment. But right now, the volume with our product range didn't, let's say, feed these structures sustainable and profitable. In Scandinavia, we also decided to really switch from our own activities as an importing company serving into a dealer network globally. We decide to take [indiscernible] distribution to become more profitable and defined a really national partner for Denmark, a national partner for Sweden. And also in Norway, we hooked up our distribution partners directly with the factories. That means we were able to take out one step of distribution. And at the end, that means also one step of [indiscernible] out of the go-to-market strategy, which made us more competitive in the market. Turning to the bottom right of this slide, and we're going to focus. When I speak about products and services, we need to do best what we are doing, and we need to know which products the market needs. Sounds very simple. I think we explained before, the voice of customer sessions, but also the voice of service sessions that they are entertaining and running permanently between our product management and development teams and customer groups that are permanently in touch with us. We collect really the needs, not only technically, but more importantly, we try through this really to have a better understanding of the exact market pricing by having the market much closer to us. On the next page, second pillar, we speak about acceleration. Indication is clear, we talk about speed. Speed has to do with innovation with new things with digital staff. Everything around this is really driven by acceleration, and here really time matters. On the left side, you see the electric portfolio of the battery-powered product range, we call it zero-emission range. I think -- well, we could still say today, we are the only and the broadest product range in the construction equipment market. We are the only manufacturer that offers everything that you need to serve a small, medium-sized job site. Take example in Europe right now, the fiberglass developments around 5G are really a big potential and perspective for us in this, because a lot of this is taking place in the urban areas where really zero-emission counts. We, as you know, have been in this for some years already. It's now time to materialize and we have invested. We have put up that range of product, and we have really to get now fast because the market is turning in different speed than 1 and 2 years ago. This is driven on one side by the regulation, the green deal, the political stuff, yes, but more important for us is really that our customer have the economic benefit in it. That means performance is as good as any other diesel or fuel-powered product, and there are cost benefits. It's not that the electric machine is more expensive than the diesel machine. If you consider an electric product without maintenance, your operating cost over 2, 3, 4 years are much lower compared to any combustion engine product. And this, at the end, leads to real economic benefits. Even without subsidies, our customers would choose electric. It is getting better and better. Also, the battery pricing is going down. We have some products where we have the third generation of battery today. We have more or less 2x the run time and performance at the same cost that we had the first generation 4 years ago. So the machines are really at the level that they are an alternative or even an improvement to existing combustion engine products. Second, we speak about new business. On the right side there, we speak about digital staff. Also the construction industry is not, let's say, isolated against some megatrends like sharing. All of you know that the rental industry is [ something very common ]. Also in construction equipment, you always had rental companies, like you know Hertz or Sixt or others in the car industry. But on top now is a new, well, culture is the sharing culture. It's really sharing assets that are out there. And one important tool we introduced just now in North America we call EquipZip. Here, we offer it to all our contracted dealers, large dealerships with own rental fleets, around 50 in North America with around 300 locations. They all carry a rental fleet that has a certain utilization. Besides this network, we also have a channel of more than 1,000 so-called independent dealers. These are small dealerships that are selling mostly our light equipment, our tools, but they have obviously also contact to customers. They are also asked for rent. They will never be able to afford their own rental fleet, but they are on the platform, on EquipZip. And on EquipZip, they can find all the rental products that are owned by our large dealers and they can go into a re-rent operation. All of this, for us, leads basically from a 300-outlet business to a [indiscernible] outlet business, so a much higher market penetration based on this Internet platform, EquipZip. And last but not least, acceleration means also investment. On the bottom, you see a big figure. This is what we invest or plan to invest this year into our production sites into R&D, into our facility. This really to be able to not only hold up, but to really push further in our position as a trendsetter and technology leader. Last, but not least, the third pillar, excellence. This is kind of the culture that we have to have. It's clear that should be our DNA. Everything we do is high quality with a high level of culture. It has a lot to do with the internal stuff with our people. And in the middle, you can see Xto1, very well-known to our employees and workers. This is an organizational product project we launched with the end of last year, where we change our organization to become much more closer to our customers. That means the driver of the organization are our brands and our channels and regions in the market. On the other side, we have, as you know, a large number of affiliate companies in our group, and we clustered these according to their business models to really push standardization that will lead to better processes that we can digitize. And that, again, will, at the end, bring cost efficiency where we see an improvement compared to today's matrix organization. On the left, the figure, the 4,500 represents the number of people participated in training sessions in the last year. Only 600 in live sessions. This was clear at the end of February. We had the last one. Since then, it's all virtual. It is something that was a big learning curve. In the beginning, it was a challenge. It was an adventure. In the meantime, it represents not only for COVID times, but also for the future an extremely developed and mature system to really reach much more people, many more people than we could reach in the past with training. And we speak here not about our own employees, we speak about customers, we speak about dealers, about rental companies, service technicians, et cetera. At the end, a really important figure of 81%. This is about our own people, about our employees, and specifically last year, in a COVID year, where we, let's say, were rather demanding. People had to put in the extra shift, go the extra mile. It was important for us to understand if the people are still on board with us. A lot of them we couldn't see because they were in their home office. And we were running a survey with our employees on a permanent base as well or on a repeating base, and we got back this number, which is a good positive feedback for us, and it shows to us that really everybody stood up, took their effort and was supporting us with our loyalty to be able to get across such difficult year 2020. So with this, I'm closing from my side and would hand back to Mr. Helletzgruber for now.

Yes, just a few words for our excellence projects. The main reason is increasing our profitability. The Wacker Neuson Group has expanded considerably in the recent years. Our organization has grown with us during this time without undergoing any major structural changes. And this has not always been ideal from an efficiency or profitability perspective or point. So we have to undergo still a few changes, but I think we are on the right way. And I must say, in the last few months, as CEO and CFO, I have seen enormously committed, highly motivated and highly-qualified employees who are a pleasure to work with. And I think they're also going to go in more or less new way with our new organization. At the moment, people are quite convinced, and it doesn't make sense to change an organization if the employees are not convinced about it. So to come to our last, let's say, outlook for 2021, and it's still a difficult one because the crisis is far from over. And no one knows with [ maybe face ] third, fourth or fifth wave of corona in certain countries. It will be different in different countries, but still, it's still a heavy burden for us. Our industry is quite happy at the moment. They are quite a -- construction industry, quite good order books. And so we are also, at the moment, very, very busy to satisfy the wishes of our customers. And we, at the moment, have also an order backlog which is well above last year's level. So our guidance for the next year is, for the financial year 2021, revenue of around EUR 1.7 billion to EUR 1.8 billion. And we expect an EBIT margin between 8% and 9.5%. Yes. It's our outlook, our investments will be around EUR 100 million to EUR 110 million. And the net working capital, as Mr. Greschner mentioned already, we will try [indiscernible] on our goal level of 30%. Yes, I'm -- ladies and gentlemen, I'm convinced. Even COVID hit a lot in 2020 hard, but the long-term trends in our industry are good, and we will have great opportunities. Mr. Greschner showed you our activities as far as our products and our digitalization, electrification is concerned. And yes, I'm firmly convinced we can achieve the goals set in our strategy. Thank you for your attention.

Thank you, Mr. Helletzgruber, and thank you, Mr. Greschner. So we're now happy to take your questions, and I'd like to ask the operator to give you instructions.

[Operator Instructions] We'll now take the first question from Charlotte Friedrichs from Berenberg.

Three, if I may. The first one would be if you can give us any kind of quantification of the impact of component shortages and raw material price increases on output and margins as far as you can assess this at this point. The second question would be if you've seen a return of orders from U.S. rental companies already. And then thirdly, can you give us a bit more flavor around the current order dynamics? What regions are developing well? Which ones are still somewhat behind?

Yes. I think the whole industry, to answer your questions, number one, yes, we have shortages. But in our outlook for -- in the outlook of 2021, we have included all the factors which you mentioned already in our outlook that we expect in the second, third and fourth quarter. The growth this quarter, we won't have a lot of growth because we had a very strong quarter in 2021 and -- or in 2020. So the increase in 2021 won't be very significant. The shortage is certain components, and we also have increasing steel prices. We also have increasing container prices. The container rates almost tripled. And that's the way we have to live with it. And as I mentioned already, even the steel price is increasing significant pricing, and something which we had already in our -- which we now have already in our forecast for 2021.

I would take over the question 2 and 3, as 2 was specific on the U.S. rental corporations. I mean there are 3 big ones where we, yes, to answer your question, yes, they came back. We recognize both as the demand, but also order intake with the 2 largest rental companies in the U.S., quite higher than it was last year. Even it will be difficult for us to really materialize this all in Q1, and we will see a lot of this getting into revenues in the second, third and fourth quarter, especially, as you may know anyway, that, for example, Sunbelt, as one of the largest in the world, disclosing their financial year just now. We get a lot of pre-orders, but we are even not allowed to write the revenue in this moment, but the books look good, and that's a very important positive signal for the U.S. in general, also for us as this is a major customer group of ours. This leads me to your third question, which region? Let's say it this way, in all the main markets that matter for us, this is the same situation. The demand is growing on the agriculture side. On the construction side, if we speak Europe, if we speak North America, for sure. Also Latin America is stabilizing and coming back. But on a base of a year which was no business, as of last year was extremely, due to COVID in these countries, shutdowns, lockdowns for many months, so impossible. China, there was 1 month break last year. Since then, the market is booming. It is a very attractive, big market, very competitive on the other side. So it is challenging to participate. As always, and for us, an important smaller market is Australia and New Zealand, which is also coming back very well.

Yes, one quick follow-up on the raw material pricing. Do you plan to put through price increases to pass this on to customers, or rather not?

Happened already. So we plan -- we try, and we are competing out there. So obviously, Mr. Helletzgruber explained, there is an effect on the cost side where we always have to try to get it into the market. As this is a global situation, we are not on our own pipeline to realize the price development, and this is an important step we took already some weeks ago.

[Operator Instructions] We'll now take the next question from Winfried Becker at FMR Research.

I have 2 things, please. The first, as your own factory in China would be helpful, I think, if you could give us an update what has been the major achievements last year. And looking forward, what are the next steps for the further ramp-up of the factory in China this year? And my second question goes in a comparable direction like my colleague before. Could you make some comments about the stability of your various supply chains you have, having in mind that COVID-19 is not completely solved in Europe and more or less, it will take a bit longer. And so far, are you safe on this front? If you could make some comments, that would be very helpful.

Okay. I would -- this is Alex Greschner. I'll start with your first question regarding China. China, for us, is developing, I would say, positive, but difficult. Positive because we are using our factory more and more, difficult with the domestic business. Inside China, we have a tremendous price pressure on the products where we are really competing with Chinese manufacturers. This is nothing new, would you say, but on the core products in our market, the pricing developed by minus 40%, 4-0, minus 40% over 2 years. That is -- I mean it's that we could not hold up with. We then switched into a rather niche strategy, considering the size of China, what we call a niche in China, maybe a complete market in Europe. So we are very successful with what we call the mini excavators, a product that we localize in the very beginning, 1.5 to 2-ton class. There, we are really having achieved our market shares close to 20%. This is extraordinary, but it is that extraordinary because it's not that many Chinese competitor in that niche. For us, it's a 4-digit number that we could build and sell. Very important, and that is also maybe the going forward answer to your question, a very important part of China of our factory becomes more and more the export business. And with the products, we are now really reaching African markets, Middle East markets. We are in Latin America, and we are in the ASEAN region and Australia, where we can really look into fast-growing numbers, that we are obviously dealing with good quality. So the factory is able at least to hold up with the European quality. There is no difference to see on that. And on the other side, it's still a cost [indiscernible], a cost attractive from the manufacturing side. And very important right now when you consider what Helletzgruber said about transportation cost, to get a machine from Australia -- from China to Australia is much cheaper than to get it from Europe to Australia. And also your planning cycles are much shorter with the shorter delivery time. So China focused right now. We have to stabilize a profitable business inside China, but we have to focus and push the export growing about on the Chinese factory.

Yes, your second question regarding supply chain, it's a very valid question. At the moment, we have done, in the last 3 months, everything to guarantee our supply chain or to get it running. We see certain delays, but we don't have any major drop in the supply chain. It's mainly -- we have electronic components where we had some problems beginning of the year. But we feel that middle of the year, the problems will be more or less solved because everybody now in the year 2021 started with very, very big numbers, very big increase in industry, very big production increase in the automotive industry. But we think that the situation will become this year, middle of the year, but still, it has always -- supply chain is always an open question. If you look yesterday is it one of the big tankers [ aground ] Suez Canal and now hundreds of ships can't get through it. It's something which we have to -- which we monitor day-to-day until they are successful.

Okay. So the question to the operator, do we have any more questions in the queue?

[Operator Instructions] We'll now take the next question from Aliaksandr Halitsa at H & A.

I was wondering if you could discuss a little bit more Americas region. It was down 40% year-over-year in 2020. Could you kind of go a little deeper and to dissect it onto the key accounts? And then also the exposure to anchor dealers, how much the anchor dealers business was down this year? And what do you expect it to -- how do you expect it to perform going into 2021?

Yes. This is, again, Alex Greschner. Yes, the minus 40%, you're right, they came out of a mix. On one side, I think the biggest decrease that we saw was on the CapEx of the national rentals that we mentioned earlier. When you look at the United Rental, figures out of my head, 2019, we had EUR 2.1 billion CapEx. 2020, it was EUR 0.9 billion. We were hit one-to-one even worse than this because one of our largest product groups selling into this segment was generators, lighthouse and utility products. And when you consider that half of this does not go to a job site, but to the event industry, then you understand what COVID did to us. On this product segment, the CapEx went basically to 0. So it was nearly a 3-digit million drop on these products only. The second area are what you mentioned, what we call anchor dealers. We had, let's say, standstill on some of them. We are -- not due to COVID, but also to make sure that they are not outgrowing the size that we can manage and handle. We reduced business there on purpose in some areas and limited the business to have the exposure under control. On the other side, I mentioned before, if [ receipt ] tool, we try exactly to use the anchor dealers' rental fleets now to be used by additional small [indiscernible] to really use their business and asset capacity with high utilization, which on one side, means we have more exposure into the customer base. On the other side, it also means the machine has higher utilization, will turn faster. We will replace sooner. This is our action there. What we do, that maybe is an answer going forward to this as well. We are really adding already since the fourth quarter additional dealers, [ contract ] dealers, anchor dealers we called it in the past, with the size that should not outgrow, let's say, 5% to 10% of our total business. We want -- we have a limit there on exposure with a number of dealers that are not too large in this. So we don't feel the impact if any of them get into difficulties or the market in the region turns down.

And can you say how much of this EUR 150 million ABS facility has been utilized?

[indiscernible] our financing line, which is roughly $40 million up to end of 2020.

Sorry, can you repeat that?

It's roughly $40 million which we have utilized up to now. This is a figure for 2020, up to end of 2020. At the moment, we still -- it's still increasing.

Okay. And then can you confirm that on the balance sheet, the exposure to the anchor dealers remains at 37 million? Is that correct? If you have the number on top of your head.

The net effect reduction...

On the balance sheet, yes.

Confirmed, yes.

It's -- we confirm the figure.

And then maybe 2, yes, technical questions. This 33 million of allowances for bad receivables, where have they been booked in the P&L?

They will be booked in [ debt ] expenses.

Yes, yes. And then lastly, you mentioned in the presentation where you discussed gross profit, that there is a factor of impairment losses on assets. Could you elaborate what is it -- what do you refer to here?

It's restructuring parts in the U.S. since it's restructuring our business in South America, where we closed certain sales organizations.

It appears there are no further questions at this time.

Okay. So if there are no further questions, thank you very much for dialing in. If anything else comes up, feel free to contact the Investor Relations team. We're happy to take further questions or comments. Thank you. Have a good day. Bye-bye.

Thank you.

Thank you. Bye-bye.