WashTec AG (WSU) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and a warm welcome to the WashTec AG Annual Report 2024 Earnings Call. [Operator Instructions] Let me now turn the floor over to your host, Michael Drolshagen, CEO.

Thank you very much. Ladies and gentlemen, on behalf of the WashTec Management Board and my colleague, CFO, Andreas Pabst, I would like to welcome you to our annual press conference and presentation of the annual report 2024. Before my colleague, Andreas Pabst presents the figures for fiscal year 2024 and the outlook for 2025, I would like to give you an update on WashTec and present some of last year's results. 2024 was another year of challenge for the WashTec Group, but also of opportunities and successes. The constantly changing market environment, we further strengthen our position as the world's leading provider of innovative vehicle washing solutions. Our focus on sustainable technologies, digital innovations and stringent customer proximity has paid off and forms the foundation for our long-term success. More on this in a moment. Despite global economic uncertainties or precisely because of these uncertainties such as the political crisis, energy, the automotive industry and its electrification as well as the European Union and Germany, we have consistently worked on our strategy and invested in the future, in our products, in our processes and above all, in our employees. Our sustainable washing technologies and digital solutions are setting standards in the industry and will enable our customers to work even more efficiently and conserve resources in the future. To meet this challenge, we first looked at the organizational structure in order to clearly define responsibilities and the global cooperation model. We transferred the structure of the business lines in the Chemicals and Service divisions, which we had started in some areas to equipment. From my point of view, there are 3 ways in the company to get employees to work together. These are come and goes, shared location and that you need each other. For this reason, we then assigned budget responsibility to our business line and personnel to the functional areas. And as already communicated, implemented them on September 1, 2024. The team is important in the company and also in the metrics. And I'm really pleased that we have been able to recruit top performers from WashTec for new tasks such as Georg for Business line Equipment, Jrg for Global Operations and Michael, who is responsible for all aspects of the flow of goods. We have also been able to recruit Tobias for HR, Eric for business line Global Service and from 1st May on, Dirk for R&D. With this team, we have already taken further steps to optimize our collaboration. For example, I joined MBO with the same key figures for all managers and the vision for the Augsburg side with Project Augsburg, but more on this in a moment. In 2023, the WashTec strategy was communicated with a focus on regions and products. With our equipment and innovations we have achieved in this area, particularly in the areas of rollover, tunnels, safe service, water treatment and chemicals, a further focus is on our service, which is the backbone of WashTec. In recent months, we have worked hard as a team to finalize our products here and we will be introducing new products in all areas in the coming months, whether in the hardware or the digital area. Our strategy also focuses on our core markets of the U.S. and Europe. However, the starting point of this strategy is also that we are placing our end customers and operators at the center of our decisions and thereof, the entire ecosystem, and we look forward to communicating further details on this in May. We have taken this basis with the entire customer journey on the one hand and our employees and culture on the other to continue working on our strategy with a clear vision, mission, corporate strategy and our targets, but also with our value proposition to our investors, customers and employees. To start this journey, I would like to talk about our 4 value propositions today, namely economic success, quality, sustainability and convenient and easy to use. The first point is simple. WashTec wants economic success for all its stakeholders, and this is also in its DNA. We have, therefore, included in our key figures, EBIT and cash. We have also anchored this in our MBO. But what is economic success without quality. And quality is the key. Who doesn't want to be able to rely on their bike when thundering down the mountain. And I can tell you, it was real horror when my son seat gave up last week or on the cooker at home, to name a less dramatic but no less emotional topic for me. When we were trying to cook for our guests, we had to pull the fuse every 2 minutes, wait for the cooker to switch off completely, then put the fuse back in and hope the cooker would come back on. We all just ended up eating pizza together. And WashTec still stands for quality today, which makes me more than happy. And it goes without saying that WashTec has been working on sustainability for years. But by this value proposition, we don't just mean sustainability in terms of CO2 reduction for our chemistry, which is great, by the way. But of course, also the sustainability of our products, our processes, our employees, our customer relationships. And finally, the value proposition, convenient and easy to use. Convenient and easy to use for the next employee for production, for service, but of course, also for our operators, for our customers as self-explanatory as possible, like, for example, the loud speaker systems that you connect to your home infrastructure via plug-and-play or these cooking aids that have all the receipts online tell you how much and what ingredients to put in and take care of everything from mixing and waiting to cooking. We have been working on our innovations in recent years. At last year's trade fair in Stuttgart, for example, we presented our new wheel washer. This year, we will officially present our new rollover machine alongside other highlights in the chemical sector and position ourselves as a pioneer for smart solutions in vehicle washing and care. With a perfect match of leading wash technology, chemistry and digital services, we will drive the transformation forward. And Superoperator is an important partner on this journey. This cooperation represents another milestone in 2024 for Superoperator, for WashTec, but also for the entire customer journey. Our value proposition of convenient and easy to use has led to this logical next step, and I'm glad no, I'm excited about our cooperation with Superoperator. Together, we are on the way to optimizing and implementing the entire customer journey in a sustainable, simple and convenient way for our customers. With the [indiscernible] recognition, our equipment, customers will be able to enjoy the washing experience in the future. Since communicating our cooperation at the end of last year, we have already implemented over 100 locations and will have implemented a total of over 400 by the end of the year. In addition to the organizational structure team, culture and strategy, we are, of course, also working on our process organization and processes. Here, we are committed to the Augsburg location with its many advantages as a well-known company in Europe and especially in Germany. Even if many things need to be optimized in the future with and through politics to ensure competitiveness at this traditional location, Augsburg and WashTec stands for sustainability, attractiveness for our employees, expertise and loyalty to name just a few points. On the other hand, we must also answer the question of how to optimize, how to finance and how to achieve economic success in line with our value proposition. For us, Augsburg is the core of our expertise with a clear focus on final assembly. And this focus has clear principles, starting with transparency in our processes, which run like a neckless pearl, clear preassembly like a fish bone through to a clear division of tasks between production and logistics according to the nurse and surgeon principle where the nurse hands the right parts to the surgeon at the right time. To achieve this, we will make significant changes to production and also simplify and adapt the layout in Augsburg in the next months and years. And of course, our production plant in the Czech Republic and our preferred suppliers will play an important role in the network in future. Step by step by step, we will relocate the preassembly operations to the Czech Republic and transform Augsburg into an excellent location. Process optimization along the entire value chain leads to cost optimization, which finally is attractive for our locations and plants, our employees and our investors. On the one hand, because we can gradually realize efficiencies and invest in our locations and processes. On the other hand, because this reduces costs and these optimizations contribute to WashTec's competitiveness. Finally, a great example from our Chemicals division, which not only takes sustainability in the supply chain to a new level, but also optimizes our process overall. After hard work in 2024, we are offering CHEM-IN-A-BOX to our first customers and will expand this offering step by step. This will optimize the process and waste cycle for us and our customers. Plastic waste no longer needs to be returned and large volumes no longer need to be disposed of. We are currently working on further professionalizing the cycle and ensuring that fill levels can be automatically detected and replenished using our equipment, thereby reducing stock levels for everyone involved. With these impressions, I hand over to my colleague, Andreas Pabst. Thank you very much.

Yes. Thank you, Michael. Also from my side, a very warm welcome. I'm glad that you joined this call. Before I dive into the details of fiscal year 2024, let me sum up WashTec's 2024 as a whole. WashTec has delivered. With the exception of the accident rate, we met or even exceeded the promised performance figures. Our earnings performance particularly stands out. We have now improved the EBIT margin for the third year in a row from 7.9% in 2022 to 8.6% in 2023 and now 9.5% -- while this is good, it is still not where we want to be, but it's clearly going in the right direction. Free cash flow is also at a constantly high level, and we have significantly increased ROCE. Overall, we on the Board, on the Management Board are, therefore, happy with fiscal year 2024, and we will take it as an inspiration to do even better. Before I come to the figures of 2024 and the outlook of 2025, I would like to take a few seconds to talk about an issue that is close to my heart and to the entire WashTec team, sustainability. As you know, WashTec has published a voluntary sustainability report every year since 2021. It goes without saying that we are committed to transparent sustainability reporting, and this is also part of our DNA. For fiscal year 2024, the nonfinancial statement has been prepared for the first time based on the European Sustainability Reporting Standards, ESRS. WashTec supports this next step towards more transparent and consistent disclosure of sustainability information in principle. At the same time, we might well ask if 78 pages of extra information in the annual report really serves this objective. The WashTec management, therefore, endorsed calls for more genuine sustainability and less regulation. Investments like our new CHEM-IN-A-BOX, which Michael explained some moments ago, -- in terms of sustainability topics, WashTec works on a lot of different items. Some are shown on this slide. In 2024, we intensively discussed our double materiality assessment. This lays the foundation for us to focus even better in future years on the areas that have a material sustainability impact. Based on the ESRS, WashTec has identified the following 5 material topics: First, climate change, water pollution, water resources. And then, of course, our own workforce and business conduct. If you look at our carbon emissions, WashTec is doing its homework and making continuous progress. Like, for example, in 2024, we installed a rooftop photovoltaic system on parts of our site in Augsburg, which we want to expand this year. Overall, we originally aimed to reduce carbon emissions by 30% from 2019 to 2025. Thanks to a lot of single steps, we already achieved that target in 2023. In 2024, we undercut that once again and now stand at a 34% reduction compared to 2019 base year. Based on this success, we now set our next milestone. We want to cut carbon emissions below 50% by 2030. But that is not the only area we are working on by continuous product development and by stepping up sales promotion, we have now achieved a 22% water recycling ratio. We define water recycling ratio as the installed base of WashTec recycling systems worldwide divided by the number of WashTec vehicles washes installed worldwide. We are also making progress on social matters. For example, our ratio of women in leadership position is very close to the share of the women in our total workforce. We are well on track here overall and moving on further. Let's now turn to some details on the financial figures for 2024, starting with the WashTec Group's revenue performance. The WashTec Group generated revenues of EUR 477 million in fiscal year '24, a decrease of EUR 13 million or 2.6% on prior year figure of EUR 490 million. That means we met the target communicated for 2024 of revenue in the range of plus/minus 3% relatively to 2023. This is particularly notable given the relative weak first 3 quarters in each of which our revenue was significantly down on the corresponding prior year quarter. We then picked up significantly in the fourth quarter when we outperformed the prior year quarter by 7%. This increase is mainly due to the significant higher sales of equipment to key accounts in Europe achieved thanks to the collective efforts of the entire WashTec team. In total, we delivered the second best quarterly revenue in our corporate history. Over the year as a whole, revenue was down on the prior year, mainly due to lower revenue in equipment business. Chemicals revenue was also down slightly, while revenue in service business was significantly higher than the prior year. We will come back later on to the revenue split by product and segments in greater detail. But first, let's turn to what is truly the most satisfying performance figure for 2024, our EBIT. Mainly due to an improvement in gross profit, EBIT rose significantly by 8.6% from EUR 42 million in prior year to EUR 46 million. This exceeded the company's forecast of mid-single-digit percentage increase in EBIT. We reported on this in a mandatory announcement on February 5. Several factors contributed to this positive outcome. Firstly, we should mention the efficiency measures that we have implemented. This enabled us to keep our production costs at the same level as last year despite wages increased. There were also efficiency measures in other areas, notably in service, which contributed not only a higher share of revenue, but also higher earnings. Another contributing factor was the price increases that we implemented in the past few years and that now show full effect in 2024. The EBIT margin for the year as a whole was 9.5% compared to 8.6% in the prior year. Let's now take a brief look at EBIT for the final quarter 2024. Due to the significantly higher quarterly revenue, EBIT in the fourth quarter rose sharply by EUR 3 million or 19.3% to EUR 18 million, the highest quarterly figure up to date. That is a figure we certainly can be satisfied with. Let's now take a look at the revenue split by products. For the annual report 2024, we have switched the presented Equipment and Service revenue separately as Equipment revenue and Service revenue. This also provides a better view on recurring revenue in Service and Chemicals. The recurring share of revenue is 43.9% in fiscal year 2024, an increase of 2.5% compared to prior year. This brings us even closer to our long-term target of 50%. At EUR 261 million in 2024, Equipment revenue was EUR 20 million down on the prior year as well as the lower level of direct sales business, this was due to the particularly lower sales volume with key accounts in North America. In contrast, the key account business in Europe developed positively. Generally speaking, the development of the direct sales business is more heavily impacted by the general economic uncertainty. This has manifested itself in a general reluctance to buy with subdued levels of orders received in the first few months of the reporting year. By contrast, Service revenue increased significantly by EUR 8 million to EUR 145 million. This is partly a result of process optimization and digitally domestic equipment in this business area. At the end of the year, WashTec had over 11,000 units connected online, an increase of around 15% on prior year. Chemicals revenue fell slightly to EUR 65 million, which mainly related to additional purchases of chemicals at a new customer in the prior year. Moving on to the segmental revenue split, meaning revenues by region. Europe is once again the highest revenue region. Competition was once again intensive in 2024 and was limited to just a few manufacturers. WashTec has by far the most well-established sales and service network and by far, the largest installed base of gantry car washes in Europe's core markets. This enabled us to increase revenue by 1.2% to EUR 395 million. Adjusted for the EUR 6 million revenue of the Chinese subsidiary, which was still part of the WashTec Group in prior year's period, revenue in this segment was up 2.7% on prior year. The volume of business in service increased overall, whereas revenue in Chemicals business remained at prior year level. Revenue in North America decreased from EUR 103 million in prior year to EUR 85 million. This corresponds then to a fall in share of consolidated revenue from 21% to 18%. In U.S. dollars, the fall in revenue was 17%. The lower revenue was mainly due to lower sales volumes, particularly with key accounts and general reluctance to buy in the direct sales business. At EUR 42 million, EBIT in Europe and other segment was significantly higher than the prior year figure from EUR 36 million. The segment thus now accounts for a substantial 92% of WashTec's total EBIT. At 10.6%, the EBIT margin was once again in a double-digit range, a level last seen in 2021. The efficiency measures we have implemented contributed here, allowing us to keep production costs per rollover equivalent roughly constant despite wages increased. EBIT in North America fell by EUR 2 million to EUR 4 million due to the weak business development. The measures implemented last year to increase profitability in this segment on a lasting basis enabled us to achieve an EBIT margin of 4.3% despite the significant lower revenues. On this slide, you see the familiar EBIT bridge showing the reconciliation of EBIT in 2023 to EBIT in 2024. The lower revenue led arithmetically speaking, to a EUR 3.5 million impact on EBIT. Nevertheless, gross profit rose disproportionately by a substantial EUR 15 million or 8.2% on prior year. This was due partly to efficiency programs to optimize production costs and partly to price increases implemented in the last few years. The gross margin improved from 27.9% in the prior year to 31.0%. Marketing expenses increased by EUR 1.4 million, largely to the two year Unity Trade Fair in Stuttgart and investments in chemical distribution. The increase in research and development costs mainly related to additional activities to speed up the exploitation of market potential in Europe and North America. Some 80 people were employed at the end of 2024. That means around 10 more than one year earlier. Administrative expenses were around EUR 2.6 million higher than the year before. This was mainly due to the one-off expenses totaling around the connection with the change of the CEO and expenses for IT projects. In total, earnings before interest and tax rose from 2023 to 2024 by 8.6% to EUR 45.5 million. On the next two slides, I would like to go briefly over some other performance indicators and how they change compared to the prior year. First, net income and earnings per share. Due to the significantly improved EBIT and a tax rate of 26.7% in relation to EBT compared to 27.2% the prior year, the net income improved by EUR 3 million to EUR 31 million. On the basis of the unaltered average number of shares, earnings per share consequently rose by 11% to EUR 2.32. Net operating working capital increased mainly due to the higher trade receivables as a result of the very strong fourth quarter. Capital expenditures at EUR 10.2 million was lower in the reporting year than in the prior year. It should be noted that capital expenditures in 2023 with an exceptional EUR 10 million for the acquisition of the site occupied by the American subsidiary. The focus of capital expenditures in the fiscal year 2024 was on the Europe segment with a particular emphasizes on future digital projects and solutions. In addition, approximately EUR 1 million was spent for the acquisition of the long-standing Polish distribution partner. Free cash flow fell from EUR 46 million in '23 to EUR 40 million in reporting year, mainly due to net operating working capital development. Let's now turn to the company's liquidity. Put it simple, WashTec is and remains on a solid financial footing. Net financial debt, meaning cash and cash equivalents less interest-bearing loans and lease liabilities amounted to EUR 46 million at the end of 2024, slightly above the prior year figure of EUR 42 million. The company has bill credit lines of around EUR 100 million, of which around EUR 41 million was freely available at the end of the reporting date. We were also able to significantly improve return on capital employed, the ROCE over the course of the year with an increase of 2.1 percentage points to 23.6%, significantly exceeding the increase of approximately 1% that we had forecasted. Our long-term target remains at 25%. Equity amounted to EUR 89 million compared to EUR 86 million at the prior year end reporting date. At 31.7%, the equity ratio is thus also at the same level as prior year. The number of employees increased by 83 to 1,770 end of 2024 compared to 1,687 a year earlier. The initial accounting of the Polish subsidiary added 13 employees. Capacity was also expanded in research and development and in sales. Allow me now to say a few words about our dividend proposal. WashTec continues to pursue an attractive dividend policy going forward. The Management Board and the Supervisory Board will, therefore, propose to the Annual General Meeting on May 13, the payment of a dividend in the amount of EUR 2.40 per eligible share. This marks an increase of EUR 0.20 or 9% on the prior year. In our opinion, this means that our investors are benefiting appropriately from our further improvement in earnings. Turning to order backlog. In the past fiscal year, this was at the same level as in the previous year. The chart here shows the long-term trend relatively to 2020. As you see, the order backlog at the end of 2024 is 153% of the baseline as it was at the end of 2023. There were nevertheless a few changes in detail. Orders received from key accounts were down in 2024, largely due to the trend in North America, while orders received from direct customers increased in both segments, meaning in both in North America and in Europe. All in all, this provides us with a good basis for the months ahead. This brings us to the guidance for 2025. The fiscal year 2025 and beyond, the WashTec Group will continue to pursue the goal of profitable, largely organic growth. Our focus is on maximum customer benefit through sustainable technologies and digital innovations. Among other things, stronger digital customer retention and the sustainable product range will increase the average frequency with which people wash their vehicles and lead to higher revenue for WashTec, especially on Services and Chemicals. Based on a larger stable price level and the solid order backlog, as mentioned at the end of 2024, the company expects profitable revenue growth. The planned launch of a new product generation will contribute here. For the group in fiscal year 2025, WashTec expects revenue growth in the mid-single-digit percentage range. Remember, 2024, it was EUR 477 million and an increase in EBIT that is disproportionately higher than revenue growth, meaning in the high single-digit to low double-digit percentage range. We will continue to work on optimizing our net operating working capital and therefore, expect free cash flow between EUR 35 million and EUR 45 million. We also plan to improve our capital efficiency in terms of ROCE by another 0.5 to 2.5 percentage points. Our nonfinancial performance indicator continues to be the accident rate. In fiscal year 2025, we want to reduce this below the low level of 4.2 seen in the fiscal year 2023. But please let me reiterate that all of these figures reflect our expectation based on the current economic environment and do not take into account any major upheavals of any kind. This brings me to the end of my part. On the next slide, you will see our financial calendar for 2025. Thank you for your interest. Michael and I will be happy to answer any questions you might have. But first, I now hand back to the operator.

[Operator Instructions] The first one is from Nicole Winkler of Berenberg.

My first question would be on the demand picture in North America. Could you give us more insights about the drivers in North America? Where you expect the disproportionate growth compared to the Group is coming from? And could you also give us some more color on the Circle K tender, which should be out there? That would be the first one.

So I guess you mean the demand from U.S. where it comes from in 2025? We are right before -- we have in place our Circle K tender in Europe, and we are really close before signing the Circle K tender in the U.S. as well. And this is one of the drivers in the U.S. as well as our focus topic in short tunnel for our customers. So these are the main drivers in equipment, and we are focusing on chemicals as well. We launched our new brand name in the U.S. last year on a show in Las Vegas. And we just started to hire salespeople with a clear task to get revenue for each salesperson more than EUR 1 million, and this should be also support here the growth in the U.S. step by step.

And as a follow-up here on the Chemical business, would this mean that we should expect first revenues rather towards the second half of this year if you're now increasing the sales funnel? Or what is the time frame for this kind of EUR 1 million revenue per employee?

Exactly. So it needs 3 to 6 months to get people trained and that they have the right knowledge. And this means second half of the year. Yes.

Great. And my second question would be regarding the gross margin. If you could differentiate the higher effects in Q4 coming from the efficiency measure or from the price measures because you mentioned both just to get a feeling, yes, which one was the major impact?

We produce more, and we are able to keep the production cost per rollover equivalent at the same level. That means that, in absolute terms, we also have more earnings. That is, I would say, a significant effect. And nevertheless, the other effect is the pricing level. If you compare last year, not all sold machines have had the high -- the last prices because from order to delivery, there's a little bit of time difference. And in 2024, we had really the topic that all the price increases are already in the order backlog and therefore, also in the delivery, which we had in Q4.

Okay. Understood. And maybe one last question before I step in the line would be regarding further efficiency measures because, in a newspaper, it was mentioned you're planning to transfer workforce from Augsburg to Czech, if I remember it correctly, about 100 employees. Could you elaborate on the time horizon when you're doing the -- like laying off the people in Augsburg in a social acceptable way and then transferring them to Czech Republic? And when should we see first improvements on personnel costs?

In the newspaper, it was mentioned 50 to 100. I hope we're getting closer to 100 in short term. However, to answer your question, we are currently in the stage of finalizing the negotiation with the workers' council. It should hopefully end this week with a good end, and then we can start immediately to shift. So we have some preassembly lines where we can shift immediately to Czech Republic. It takes us 4 to 6 weeks to hire people in Czech Republic in parallel and then ramping up with those employees. That means first effects we can see in quarter 3. And then overall, to get this fully implemented, it takes us 1.5 years around. In the second way, we are also thinking to do more, but this is then another story we can hopefully start to tell you next year. But this is to implement Augsburg as a final assembly in a proper way and to establish Czech Republic as a preassembly line. And the most savings are out of the logistics. I guess, around 30% to 40% cost reduction is due to process optimization and cost reduction in logistics.

Moving over to the next question from Stefan Augustin, Warburg Research.

Just a quick follow-up here on that one. I assume that costs for doing the relocation will or are included in the '25 guidance. Would you be so kind to put a tag on some expected costs even if, let's say, a range as the negotiations are not yet finalized.

Yes. We hope that our savings, which we start to get in the second half of 2025 are covering our spendings which we have due to the fact that we have people or employees in both locations at the same time, so for 2, 3 months to train the new employees. So this is additional cost. And of course, we have some additional costs to implement new tools, for example, here. The bigger spendings are in 2026, which we also hope that we can cover this with the savings because then we have to adapt and implement our new processes, inbound and outbound logistics, for example, with a roof to protect our parts in future in Augsburg. So they are in our budget 2025.

Maybe to answer, I guess your question also was, do we have a kind of an adjusted guidance? All in, what we have presented today.

Okay. The next one is, thank you very much for splitting out the Equipment and the Service business. Let's say, concluding from the statement so far made on the U.S., I assume that you expect the equipment to grow as well. Would you say, would you say that the equipment should increase over proportionately in sales versus the service part in '25?

In North America?

No, in general.

In general. So our aim is clearly doing more digital topics, doing more remote service to even more professionalize our service and service technicians. So the term is that we really want to expand our overall revenue in service as well as the profitability in service. I guess that is a statement which can be taken as a statement. If you ask in relation to our equipment development, yes, for sure, in North America, we saw in 2024, a significant decrease in equipment revenues. We want to come back. So now it's a relatively question you ask. Can I keep it like it is? So we want to expand service. We want to expand chemistry, but we also want to come back with equipment.

In addition, we have seen -- probably some short remarks from my side also. What we have seen in 2024, we have huge potential in service from a top line perspective in some countries where service was done by subcontractors, for example. And we have also huge cost potentials in regards to digitalization to do this more via online support to optimize the routing of the service technicians as well as to have the service technicians at the right place in the countries. So therefore, we see a lot of potential in the service area and equipment is also due to U.S. And there, it's about our big customers' key accounts where we are related to.

Thank you very much for that. That helps a little bit to explain the growth guidance versus the development of the order backlog. Then I have a very small question actually, which is related to the tax asset that has been reduced quite significantly. Does that imply that we need to consider a change in the tax rate going forward? Or is that, let's say, not combined?

To my understanding, it's not combined to the tax rate. This was related to a full internal dividend payment, and therefore, we had to pay some [indiscernible]. So no, that's not related.

So the next question is from Alexander Galitsa from HAIB.

I have a couple. The first one is a follow-up on chemicals in the U.S. You mentioned that you expect more revenues coming through towards the back half of the year. I'm just wondering if you could expand on the relevance of higher chemicals sales in the U.S. for your profitability. Because as I understand, these are still not proprietary formulas. So the margins on those should be sort of trading margins. If you could just provide a color in there.

You're absolutely right. That's true. We want to change this in the future. But currently, this is trading potentials we have, but still is a growth, not the margin which we want to have, but we are still positive there. And that's why we want to enlarge this by revenue and therefore, in the same amount also with the EBIT. Absolute EBIT, not a rising EBIT margin that we want to do in the next step with our strategy.

And then moving on to the U.S. market. I think what's quite impressive is the EBIT performance for the full year in the U.S. despite the fact that you made almost EUR 20 million less in revenues. So you still remain profitable at 4% margin. I guess if you could just provide any color what's behind that? And also whether you mentioned already as well that you want to come back to the revenue level you had in 2023, I presume, which was even more than EUR 100 million. Given the sort of success of defending profitability in 2024 despite the downturn in revenue, is your expectation for be it 2025 or whenever you get to the former revenue level that the margin should definitely go above the mid-single digit we've seen and rather towards high-single digit in North America?

Alex, you're totally right there. Given the fact that we have lost revenue to EUR 85 million, I am somehow happy with an EBIT margin of 4%. It's still it's not good enough. But given the fact so much less revenue, it's okay somehow, but I'm not satisfied. Don't get me wrong. But how did we manage it compared to the years, I would say, 2020, 2021, 2022. When I started at WashTec, in 2023, we really did a lot of homework in terms of efficiency in North America. We continued those efficiency programs. They are speaking on a, let's say, on a daily basis with our purchasers, with our subcontractors. We renegotiated contracts here and there. There are a lot of things which really pay out now that we still have a positive EBIT margin of this 4%. If we would have not done this homework in the past, I'm with you that the number would be worse. And the second part of your question was what will be in the future. So when we will be able to come back in terms of revenue, we expect then that the EBIT margin will climb over proportionately.

Some improvements. We in-sourced some topics like laser cutting, for example, where we see a lot of improvements and also in the margin. And for sure, we have to focus on service and chemicals to increase EBIT margin in the product mix of Mark VII in the U.S.

Understood. Then I have a question on services. Also I want to acknowledge and compliment you on the decision to split up this segment. You mentioned that process optimization and digitally connected equipment is something behind positive development in the service area. I'm just wondering if you can add some context color to the situation, what exactly has been optimized, how digitally connected equipment allows you to grow revenue? I think part of it is what you mentioned and would appreciate if you could add color also that some countries they used to rely on subcontractors. If you could somehow maybe qualify, quantify the potential you see how much ground you can cover still with your own services? But ultimately, also, I wonder whether the fact that you have more digitally connected machines ultimately leads you to grow service revenue, not only profitability. And finally, related to that, you have now 11,000 connected machines that has grown 15%. If you could share some thoughts where you think you will be in 3, 5 years in terms of how many machines are connected and whether those connected machines can be done retroactively? Or is it only new installations and replacements? Big question, but if you can explore on these topics would be helpful.

Probably I'll start. So digitalization means top line and bottom line, both. That means on top line, we see a huge potential, especially in relation to subscription models. So also with our new cooperation partner, Superoperator, we are now in the situation or in place that we can increase wash per site. And for that, we have to strongly monitor the site that they are 24/7 online. And with that and subscription models, we are also participating on pay per wash, for example. And this means we can increase top line here on the site. On the other side, especially if we have maintenance contracts in place, we can reduce cost because we can adapt visits or we can reduce visits and can professionalize our routing per year, not per technician, but per year per site. So a good example for subcontractor is, for example, Italy, where we changed our strategy some weeks ago. Now we hire service technicians in the north of Italy. So we are not taking Italy totally. So we are focusing on North Italy, for example, to give one example to hire our own technicians and to start making our business on our own with higher margin there and also with hopefully at least same professionality, but we think with more professionality. We have also some other countries like U.K., we are investigating how to get there, for example.

And the question is, do we retroactively connect machines in the field. For sure, every new machines, which we are delivering will be connected. For old machines, which are not connected, if it makes sense for the customer as well as for us, then we do not do it, yes, then we connect it as well, but it's not the major part of it. But I also would like to point out to the explanation Michael gave earlier to the topic of Superoperator. So there's really a need in the market to connect the machines to improve the business models here in that way.

And we have good examples in the Nordics where we are seeing that the business model fits.

Understood. And I think just a very last one on the guidance to avoid any confusion later on. Your guidance is based on what number, the reported EBIT, EUR 45.5 million, I believe. Is that correct?

Yes, correct.

Next, a follow-up from Stefan Augustin, Warburg Research again.

Very quick follow-up on the last comment here. Could you remind us a little bit what you see what the competition is doing on the digital products and the service side?

We see some competitors, especially from copying from the U.S. who are implementing digital solutions. But our main competitors out of Europe, we are not seeing their digitalization as the main strength currently. I guess they speed up there, but currently, I guess we are ahead of good competitors, but we see 1 or 2 which are closely linked to the U.S. Who also have digital products in their portfolio. But they are currently mainly seen in Lithuania, for example, and we have to observe them how they are trying to enter the new countries and markets. But currently and this is why we are also now focusing so hardly and so much on service because service is protecting your business.

As there are no more questions in the queue, I'm handing the floor back over to the host.

So from our side, thank you very much for participating in our call today, the earnings call 2024. We are more than happy to provide these numbers. We are working heavily on 2024 figures top line, which is hard work, but also bottom line to be on track in the overall margin number to be profitable from a WashTec side, but also our value propositions, which we presented before that we count on them and that we deliver. So we have now to prove and we hope we can do it. Thanks for participating, and have a nice rest of the day.

Thank you for joining the call. Bye-bye.