WashTec AG (WSU) Earnings Call Transcript & Summary

Dear ladies and gentlemen, my name is Ralf Koeppe. I'm the CEO, CTO of WashTec AG. With me is Andreas Pabst, our CFO. I will present in English because some of the people who are online, I know or do not speak German, but discussion in any language, fine. So, I would like to talk about driving customer success in the Carwash business with sustainability and digitalization. Let's jump into the topic. What is our mission? Sustainable carwash. It's nothing new that a car wash machine combined with a water recycling system with some sustainable chemicals defines a sustainable car wash. And we will see that this is what we offer, but that's not what the market already has accepted in the sense that still there are countries that have very cheap water supply and therefore, do not use water recycling systems, et cetera. But from the portfolio of what we offer, we offer a rollover system. This means car is titan still. The machine is going over the car. -- tunnels, car is put through the machine. Check wash, you do it yourself. The water retreatment system, sustainable chemicals and a digital platform. All our machines are connected, and we know exactly what our customers are doing with the machines, and we even can identify the end customer shape of the car, for example. So, we have very much good access to the data. Our customers are big mobility hub providers, basically key account or big mineral oil companies, but also those chains, those operators of those chains have been switched to a convenience store or convenience companies that do the distribution of gas. Of course, there changes when the e-mobility kicks in, e-mobility or gas-driven car doesn't matter. They both get 30 and they get washed. So, there's no influence from that side. Retail, of course, automotive, but also independent wash operators are also a big part of it. So, it's not only a key account business. Overall, we are 55% in direct business and I would say, 45% in key accounts, and that's a quite healthy combination when the direct business is a little bit higher in percentage than the key account business. As a company, we are entrepreneurs, we like to work agile. We like to work with less hierarchy go directly to the problem. -- if you want to read about how we work our Oberkocken concept and so on, you can have a look in our sustainability report 2021, where we have described it. But it's important that we drive the problems of our customers and are less organization that is basically working on itself. We are really focused on the customer topic. Just a short overview where we are. We have around 40,000 units that we did supply to our customers active in the market. In peak times, this is 3 million wash a day. We have around 1,800 employees, global footprint in 80 countries where we have although we have 13 country units. So, it's not that in every country, we have our own subsidiary. And WashTec AG has 50 years of innovation, leadership and experience. So basically, the first companies who invented carwash based in Augsburg, actually, there were 2 of them and others have been consolidated in WashTec, and we have been 20 years old in 2020. Now to the figures. We released them yesterday. We have a new all-time high in revenue, plus 12% versus prior year tailwind from our own price increase and of course, FX impact -- and moreover, the important thing is we have been able to deliver all the 2 years in 2021 and 2022 with a lot of extra effort and that allowed us to again gain market share. We have a significant number of machines taken out from -- by us from competitors. So, we took a significant number of competitor machines out and also new to industry business, we gained a lot more than 70%. EBIT margin with 8% is below prior year, and this is, of course, there's material price increases and production inefficiencies to securities delivery -- we had many -- we have multiple price increases that will come through step by step. We are already seeing that. We will see that. And also, the cash flow is influenced by the result. We have higher inventories, much higher inventories. Over 50% of incoming inventory of incoming parts are delayed. And the time to get them reordered has increased by 100%. So, we needed to survive on these last 2 years with higher inventory, but we are very optimistic that we can reduce them back again this year, situation has changed differently. Looking at the quarterly revenues. This is a typical seasonality in our figures. Q1 is lower than Q2, Q3 and Q4, and that has always been like this. And you will see that we had an exceptional Q4, those who follow us up knew that we have a significant volume in the market and revenue recognition is when the machine is installed and commissioned, and that was a big part, especially in December. And so Q4 '22 is the best quarter from that in terms of number of machines, Europe stays flat, but we have significant growth also and U.S. will be the first time in revenue of EUR 100 million. Looking at the EBIT. These figures, as I said, is not satisfying for us, but look at the figure of Q4 in 2022, we are slightly coming back. Material price increases has affected that, but our price increases are now step-by-step kicking in. The key accounts, of course, those contracts had to renegotiate it. material price increases, you can do easily in the direct market for -- in the price list and maybe it takes 6 to 9 months to come through with them. But on the key account side, you have to have -- go through tough negotiations. And we had done in 2021, those tough negotiations. And then the war comes in another material price increase coming. We had to go again to the key accounts. So that's a very cumbersome thing to do. We did that. And we believe that with Q4 '22 with EBIT margin back on prior year level, we are on a good way in 2023. Also, I will not give a guidance for 2023 at the moment, but our ambition is back to double digit. This slide has still the 21 figures because we have not released yet the figures for the certain machine chemistry or service business. But what I would like to say is that with service and chemistry together, 30% -- 40% of our revenue is based on the installed base is recurring. It's not on the CapEx side and the OpEx side. And that, of course, means a lot when we look at the market share, we gained through this last 2 years of supply chain issues that we were able to deliver, and we were able to increase the installed base. As you might know, we are a company that has distributed an average of 102% of net income and 114% of cash flow in the last years. So, from 2014 to 2021, we have paid out EUR 209 million as dividends. We have a very investor-friendly dividend policy, and we will continue to do so. On the market side, that's interesting, but those figures, of course, do not change as often. You know that the number of cars still increase, especially in Asia. Also, we have the discussion of autonomous driving the vehicle and then the vehicle will go down. But when you look at the number of covers of privately owned vehicles in the number of cars of fleet operated vehicle in Germany, for example, we have 8 car washes per year for private car and in our operation where we have car sharing and so on, it's more 50 or 40 washes per year. So, whether -- which part put through is kind of for us for the core business okay and robust. The question is only who is digitally guiding those vehicles then to the wash side. That's why we believe in digitalization. And I also will talk about digitalization. Our goal is to grow the company to around about EUR 800 million and increased those market shares, especially in the U.S., that's the growth story about APAC. APAC is for us Australia, which is a really good developed Bosch market, high profitability. China is problematic in the sense that we have a key account market and the key accounts are Chinese state-operated oil companies. So, there's, for sure, some thoughts about what we're going to do about China. This is something we have to see and to decide. Talking about sustainability. We have released our first sustainability report, where we go extensively into nonfinancial figures, publish goals and show the results. And basically, we have -- you might have a look at this first report was done in 2021, Go to the Investor Relations sustainability part. And this program basically consists out of 3 colors, which very nicely. This is economic sustainability, economic sustainability, we define that we have innovation and leadership in sustainable carwash. So that's the sustainability of our customer executing the carwash. And a big part is that all of our machines that we deliver from the factory since 2020 are connected and some are more even connected. So, I would say 20% of our base is already connected. We see a lot. And these are wash figures of 50 installation sites in Germany around Oxbow, where we're doing estimation technologies, regression technologies, regression models to take out the water -- to take out the weather because good weather means a lot of things are washed and we can -- we have now a prediction algorithm in place or several, and this shows that the wash counts can be predicted by our installed base data, and there's much more we can do with the data. With that, we can estimate chemical supply, we can advance that. we can give hints to the customer and so on. And we have also outliers like the COVID lockdown, we had freezing periods. And we have, of course, Sahara Dustin to others. And we also see that after -- in the summer, we had a price discussion when the price subsidiary came back, was taken down from the German government. The prices went high on the gas station, especially in Southern Germany. I think in Northern Germany, it was something different. And then the washes done. We can, with our data, we are prepared to drive closed-loop business intelligence and even artificial intelligence. We are prepared for that. But step by step, we take that in to add value for our customers. The platform we are doing, this is my work check and this was platform has different aspects for the service, for the customer, for a web shop, but also a smart site automation system where you can term light of doors on doors open and so on. Similar to what you know from your home automation system, if you already invested in one, and you can see this can be a similar applied. That's our platform and every digital content contracts is managed with that platform. The biggest thing why the investments in such a platform, are good investments is our biggest label workforce is the service, this 500 to 600 people, depending how you count worldwide. And if every machine is connected or when the machine is connected in 20% of the cases, we can resolve the problem remotely. That means you have read signs just looked at the Northwest region. We had 9 machines in red in the last talk, and you'll see exactly what to do, how to resolve that problem. And only if it cannot be solved then somebody drives out and this for service contracts, this means efficiency and profitability in our service contracts and also CO2 emissions reductions. The new SmartCare machine -- that has -- is more digitalized. It's a new generation. It's a kind of evolution of the current machine has much more -- provides much more digital data. We have now able to bring that machine into first tenders, large-sized tenders with key accounts. The machine came from upper segment, and we're taking it now down to lower segments, and that's a fundament also for our business. Same on the tunnel side. On the tunnel side, we have 2 different tunnels, the SL2 tunnel, which is used in Europe, more high sophisticated in the U.S. You have less high sophisticated equipment SL1. -- throughput, higher throughput, and we can actually have installation in the U.S. market from both sides. So, some of the customers want to have the kind of European style technique and some of them, the SL1. However, in the growth of tunnel, we are just catching up. So, the tunnel business is huge in the U.S. We're talking about 600 tunnels a year. And our goal is to move up to 200 tunnels, but this is slowly, you have to have capacity for projects and so on, and we want to make every project a success. And that's why the growth rate in that has to be carefully chosen. We have also discussed -- we have completely changed our recipes in chemicals and generated a green car care, signature for that chemicals, and this is also looked after by casinos and this green car care and blame is also used by the first customers because it's important for the end customer that they understand that the carwash chemicals are not coming out of petrochemical basis. They're coming out of natural naturally grown instances. Of course, some parts still don't work on natural crone basis, but we're in a good way, and we are a market leader and the rest is following us. That's a good -- it's a positive sign. Some slides I take in now and we will also publish this a little bit further detail in the next sustainability report, when you wash a car. You need around, let's say, 40 liters of water. -- maybe 30 liters of port for rollover system, when you use used water. The used water is used for pre-washing, high pressure and for rinsing and after effects, you use freshwater. I just purchased a new washing machine, 4 kilogram of sports closes in a washing machine, it's 30 liters, 40 liters, which my washing machine at home used with that amount of order, I can clean a complete car. That has always been like this, but it comes more and more into focus. And interesting, when you look, where are those water retreatment system are distributed. It correlates to the price of water the, let's say, for euro for the cubic meter of water is necessary that you have a business case so far. But in France, we had the first lockdown this year, where 20% of the wash sites have been locked down, never independent of if they have a water recycling system or not because of the water drop, because of water was not enough there. And so, there's a regulation topic. And you see Spain, Italy, but also Netherlands, they have quite low cost of orders. But in the other countries, we are already in this business case, and this business case kicks in, if you have to close your side maybe for 1 month, then it's a better thing. So, we have to advocate this in a better way. We will have higher costs for freshwater, strict laws in customer demand. Customer demands will go towards green. I have been always hesitating to go into regulation, but now we have the first water recycling system online. We see the amount of fresh water. We see the pressure in the filtering everything, and we can argument towards a regulation, what happens in the water retreatment system and what it helps and what it doesn't help. So that's a pretty good advantage to do that. Two other bubbles, environmental sustainability. We have committed to a 30% reduction of CO2 in terms of revenue, that is a little bit a tricky number because revenue, of course, is pushed up by higher by inflation, but we have a clear few how much costs what in CO2. And we are on a good way to overfill this reduction goal. -- possibilities are that we also make this reduction goal on the absolute side, regardless of the volume of the machines we do. And we do many activities on that, especially with generation set positively driving this topic like health. So it's a good advocation and a good, let's say, employer branding thing also for us that we are living this -- and on the social sustainability, care for people and culture. We like to work agile. We have a concept be where we use cross-functional very work cross-functional and with less hierarchy for important topics -- we got new work Excellence Award. We have -- we embraced the next generation to Hakkasan's also online on the digital side. We have a diversity program in place. So, we're prepared and we are very satisfied that we can attract a lot of people. Having said that, I'm finished with my presentation, I'm happy to discuss in German in English or French a little bit, yes.

Thank you, Mr. Koeppe for the presentation. Are there any questions from the audience?

Thank you for the good numbers you presented yesterday. Just a quick question on Q4. I had a little bit the impression that you push a little bit hard to meet your guidance. Is it then -- how does it start 2023 or the other order book? Is it then that you fall back because you push hard in Q4. Maybe you can elaborate a little bit what you're thinking behind? Do we have now to be a little bit worried -- maybe you can... Set...

Order backlog is, I would say, still strong. It's not the strongest because we have, of course, FX inflation impacts in there. But in terms of volume, it's okay. We had to push hard because I can tell you, in October and November, we have installed machines, but we had stuff missing not from our side, but from the customer side. And I don't -- we don't -- fortunately, we do not report monthly figures, but October, November was terrible. And we had a lot of machines being already sitting at the customer, bolted down but not in operation. And only with commissioning in operation, we, in our business model, we have revenue recognition, therefore, also EBIT. And basically, what you saw in the quarter was big, that was planned for, but it was even more unevenly distributed when we look at October, November, December. It was a terrible year. We had to do a lot of management of missing parts and various installation due to the customer, but also the customer wants to close down things and also the bumpers and so on wants to invoice and so on. So, there was a big push on that. And we see -- we saw that the backlog is changing slower. This is basically coming into processing slower than the year before. But I think the plumbers and electricians and now things are getting better on the situation, what from my understanding.

Okay. The next question will be from our online guests.

We have 3 here. I will make one by one. So how did the EBIT margin in Q4 in the U.S. develop? Could you give a ballpark figure like 0% to 5% or 5% to 10%?

Yes. U.S. figures, we will publish on the 30th of March with our annual report. So please be confident. But U.S. has also been affected by high inflation and material cost increases. There's also a lot to do on the service side. We have now installed a service manager from Germany, who is driving this efficiency. So, there's a lot of measures. It's a profitability program in place for the U.S., but the figures are not yet published.

Okay. The next one is order intake seem to develop positively in Q4. Could you give some more granularity where demand came from and about the pricing of the new orders...

Yes, We had the strategy of multiple price increases accumulating to quite a high number of matching the material price increases and to come back to the same profitability as before. And we see that those price increases are coming through the backlog for the direct business, a little bit slower as we estimated. So, it takes more 9 months than 6 months, as I said. For the key accounts, we had to renegotiate price increases already in 2021. And as you can imagine, with the war kicking in with another price inflation round kicking in, we had to go again to the key accounts and doing this with the new tenders, we renegotiated. We have been quite successful in establishing that. And the renegotiations, of course, you can only achieve a certain volume, and that kicks in a little bit later. So, at the end of the day, the new order backlog, which we have and the order intakes will drive us to a better profitability next year, but with additional measures on the cost side. I don't want to give an outlook on that, but 2021, we had a very similar discussion. We said we want to be a double-digit company. There were big discussions on those events. They were online at the time to go it, whether are we going to get this 10% 2021 already or whether needs another year. Our goal is to become 2023 10%.

Excuse me for the... You're talking about this year.