Accelleron Industries AG

Ladies and gentlemen, welcome to the Accelerance Investor Conference for the half-year 2024. I am Moira, the course call operator. I would like to remind you that all participants will be in listen-only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 1 on your telephone. WebTAS viewers may submit their questions in writing via their relative field. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Daniel Bischofberger, Chief Executive Officer. Please go ahead.

Hey, thank you, Moira, for the introduction. So, dear ladies and gentlemen, good morning and a warm welcome from my side here in Baden, Switzerland. Thank you for attending Acceleron's Half Year Results Webcast Conference 2024. I am Daniel Bischberger, CEO of Acceleron. With me is Adrian Grossenbacher, our Chief Financial Officer. Before we start, let's have a short look at the Safe Harbor Statement. The presentation today contains forward-looking information that naturally comes with uncertainties. Further, the figures in the presentation are in US dollar, and prepared according to US GAAP accounting standards. Let me go through the agenda. As already said, I will start with the key highlights and market developments in the first half of 2024. Adrian will then take over for the financial review, including outlook. Finally, as already said by Moira, we will conclude with a Q&A session. So let's start with the key highlights. First half of 2024 was another strong half year. Our revenues grew to 505 million US dollar or by 14 and a half percent in constant currency and nominally by 12.7%. Organic growth, that means excluding the contribution of OMT was six and a half percent. We achieved an attractive operational EBITDA margin of 25.4% thanks to realized operating leverage and cost management. Our cash flow conversion, which is typically lower in first half, reached 34%. This is a significant increase compared to last year's 17%. Net income was a significant increase to $89 million from $47 million last year, supported by a reduction of non-operational build-up costs needed to establish a standalone and stock listed company. Overall, a strong performance resulting from a successful strategy execution and the hard work of all our employees around the world. The engagement and passion are world class. I would like to take the opportunity to say a big, big thank you to all of them. Please let me elaborate on why we were able to grow stronger than anticipated at the beginning of this year. Typically, we operate with many small orders with short lead times that range from 48 hours to six months. Our typical order book is equivalent to about three months revenues. Hence, the visibility of our business is limited and smaller changes can quickly occur. Marine new product business is the exception. thanks to Shipyard's multi-year order book. But marine new product business accounts for only around 15% of our total revenues. So in the first half of 2024, merchant marine new building and service market continued to perform strongly. And growth in marine medium speed service allowed us to compensate for a slight decline in low speed service that saw a record high in 2023. We received also some large service orders, especially for Navy supply vessels and energy applications. We have been able to increase the capacity of OMT's Turin factory faster than expected with a positive impact on our inorganic revenues growth. And last but not least, we benefited from high demand for turbochargers for backup power linked to the growing market for data centers. In high-speed business, we saw a temporary reduction in sales for gas compression as customers reduced their inventory. Here you see our expected market outlook as presented in March this year. At that time, we expected most of our markets to be stable, with the exception of container gas compression slightly to decline, and specialized chips and backup power to increase. Here you see our updated market outlook. In green, the positive changes to our March outlook. The container business benefits from higher freight rates and lower scrapping, driven by the increased demand for shipping. This is also a consequence of the situation in the Red Sea that forces many ships to take the longer route around Africa. On the tanker side, we can see that ship ordering has increased as more energy trade is happening by sea freight vis-a-vis pipelines. On the cruise side, we see ship ordering to increase after four years in which ship owners were more concerned about reducing their depth levels from the COVID pandemic. Due to the long lead times for cruise ships, this will have a positive impact on revenues starting earliest 2026. For the power and gas compression market, we have no material changes in our expectation. While lower gas prices can have certain impact on short-term demand and stock levels in gas compression, structural demand for the North American shale gas remains healthy. During the last investor presentations, we provided some deeper insight into our marine and gas compression markets. It would be helpful to share more insights into our power generation related business. Power plants are built in many different forms, powered by coal, by gas, nuclear, hydro, wind, and solar. Many of them use large gas, steam, wind, and hydro turbines. Internal combustion engines represent a niche, covering only three to four percent in overall power generation capacity worldwide. Their strengths are the dispatch and fuel flexibility, as well as quick response time. That's why they play an important role in reliable power supply. The largest internal combustion engine segment in terms of installed capacity is backup power, so on the left side of this slide. They are talking about emergency generators for hospitals, data centers, and other critical infrastructure. These are typically high-speed engines running on liquid fuels like diesel due to easy local storage. This is a market which was traditionally dominated by turbocharger suppliers from the truck industry. We are growing our market share here by providing higher power density turbochargers, but are still a comparatively small player, but with significant growth potential. Prime and balancing power applications, so on the right side of this slide, are small in terms of installed gigawatt, but these applications require more service due to mid to high utilization rates and are therefore a key market for Exelon, where we enjoy a high market share of far above 50%. These power plants are also used for baseload power supply in remote areas. For industrial plants, that requires stable and safe energy supplies in areas with a weak grid or for balancing purposes where supply of electricity from wind or solar are intermittent. It also includes some niches such as combined heat and power or biogas where high speed engines are more frequent. Combined heat and power used in application where customers need industrial process heat or residential heating in addition to electricity. This application can play a key role in addressing seasonal fluctuation in the power supply and heating demand. Biogas plants are used when agricultural waste or residues from wastewater treatment are gasified and used for electricity generation. This market is very local and very often depends on subsidies to be commercially viable. Overall, we can observe a shift from baseload to balancing power plants. The more intermittent renewable energy like solar and wind are used. So single engine range from less than one megawatt, so more the high speed, up to 20 megawatts. What the medium speed is power plant capacity from few megawatt to a couple of hundred megawatt. So high speed engines are typically used for smaller power plants and by industrial customers. while medium speed engines are more common for base load and larger utility type power plants directly supplying to the power grid. With about more than 30% of our revenues, power generation is a significant part of our business. But given the different applications and the multitude of local drivers and regulations, it is difficult to derive one global trend. But we see that digitalization and AI, as well as decarbonization, provide us with nice opportunities, be it as backup power for data centers or as thermal balancing power. Let me now talk about the two acquisitions we recently announced, OMC2 in Italy and True North Marine in Canada. I'm really happy to introduce these two companies to you and give you more insights on how they fit into our strategy. So let's start with fuel injection. As presented during the last update, fuel injection is a growing market and production capacity is the biggest constraint for this industry. Besides the low speed growth that is expected by the increased penetration of dual fuel vessels, we have the clear ambition to grow our market share in the fuel injection business for medium speed engines by taking advantage of new fuel applications. Both low and medium speed require additional production capacity. And this is why we decided to acquire OMC2, a company with 70 employees in Brescia, Italy, specializing in the production of components for medium speed fuel injection systems. So in the short run, OMC2 will provide OMT with additional production capacity to focus the capacity in Turin, so the OMT factory, on two-stroke components, while producing more four-stroke components in the OMC2 factory in Prussia. In the long run, the acquisition, including real estate and land, provides further opportunities to support our growth ambitions especially in the four-stroke fuel injection business for the next years. We expect the transaction to be closed in the next days. Last week, we announced the second acquisition, this time in the digital space, True North Marine, a company headquartered in Montreal, Canada. Please let me explain the strategic background. In the context of marine decarbonization, vessel performance optimization is becoming more and more important. Vessel performance optimization has three different aspects, starting from one, operations, two, equipment and its maintenance, to three, new fuels. Operational optimization is the first and most accessible optimization opportunity. We currently address the topic of new fuel with our fuel injection and turbocharging offerings, and equipment maintenance and optimization with our service and with our Tacoma software suite. The addition of True North Marine allows us to expand our offerings to the more operational aspect of vessel performance and helps ship owners and operators to meet decarbonization and commercial goals, also in light of upcoming regulations. True North Marine's offering will complement Xerons TECOM are expert in Turbo Insights to create a combined digital and consulting advisory. True North Marine provides weather routing, guidance, and voyage optimization software, as well as advisory services, including pre-voyage estimates to post-voyage claims. The Montreal-based company employs about 50 employees, including its regional offices in India, China, and Greece. By the acquisition of True North Marine, Axaron also significantly increases its experience in actual marine operation, with parts of the management and employees having been captains, seafarers, and naval engineers. We are pleased to confirm that the current management not only decided to stay on board, but it is also excited to support our growth in digital solutions and our ambition to become an increasingly relevant player in the marine decarbonization. The company reported revenues in the lower single-digit million Canadian dollars last year and adds a customer base of about 800 chips to the about 2,500 chips currently equipped with Tecomar Expert software. The transaction is expected to be closed in the coming days. So after sharing some highlights of the first half year, our financial performance and also our M&A execution from our markets, I would like to hand over to Adrian for the financial section. So Adrian, please.

Thank you, Daniel, and very good morning as well from my side. Let me now walk you through our financials of H1 2024, starting as always with the group performance. In general, we can say that the positive market momentum and trend from the past two years continued in the first half year of 2024, where we recorded revenues of 505 million US dollars. Daniel has already mentioned the main contributors to the top line, leading to a growth of 12.7% in nominal and 14.5% in constant currency. Organically excluding the contribution from OMT and in constant currency, we recorded a sound 6.5%. In contrast to 2023, where price increases contributed significantly to the growth, prices played a much smaller role this year. Consequently, the overall growth is largely volume driven. On the bottom, We managed to significantly increase our profitability margin from 24.1% in H1 2023 to 25.4% in H1 2024, with a substantial margin accretion of 130 basis points. Main contributors were the healthy operating leverage and the effective cost management along the entire value chain, including our support functions. In respect to the support functions, we have entered a new chapter of continuous optimization after the heavy buildup activities of the past two plus years. Let me now turn to the high-speed segment, where revenues were slightly lower than in the comparable period of 2023, amounting to 120 million US dollars respectively a decrease of 3.3% in nominal. The main driver has been a temporary decline in the gas compression business due to destocking by our customers following an extraordinary demand in 2023. A slightly growing power business with gas engines, as well as a strong growth in backup power applications, especially for data centers, were not sufficient to fully compensate for the aforementioned. Despite lower volumes and lower index-based pricing, we were able to improve the margin thanks to effective cost management. On the next slide, we see the performance of the medium-low speed segment depicted. Revenues in this segment grew by 18.8% nominally to 386 million US dollars. Organically, we recorded the growth of 9.9% for this segment. The contribution of OMT amounts to 36 million US dollars enabled by the capacity expansion. Overall contributors were a robust growth in marine new buildings and strong service demand for marine medium speed application, which more than offset the slight decline in low-speed service after a strong 2023. For the power generation and cruise business, volumes remained largely stable. We further recorded some large service orders. As a result of the strong growth, respectively the healthy operating leverage and effective cost management the operational EBITDA margin in the medium and low speed segment increased by 180 basis points to 25.2%. Before moving now to the cash performance, let us go through the bridge from operational EBITDA to net income to highlight a few specific effects. Starting from the left side, operational EBITDA amounted up to 128 million US dollars. As you can see next to it, non-operational costs were significantly lower than last year and summed up to $10 million versus $49 million in H1 2023. These costs relate mainly to the remaining build-up activities. Some expenses relate as well to the two acquisitions. We expect to remain within our original guidance of around 20 million US dollar one-off costs related to the build-up activities for the full year 2024. Linked to the acquisition of OMT, we report an amortization of 2.2 million in H1. Going to the middle of the bridge to the interest finance expense, the interest finance cost, including the impact of interest payments, ethics variances, and pension income. Overall, this position amounts to approximately 6 million US dollars. One third to the right, we can see the income tax expense, which amounted to 22 million US dollars, which is slightly lower tax rate than in H1 2023. Finally, Net income amounted to $89 million, which is significantly higher than H1 2023, or 89% up, based on a better operational result and especially due to materially lower non-operational build-up costs. Now moving to the cash flow, where the conversion stood at 34% resulting from the increased net working capital. Firstly, the volume increase resulted in higher receivables beside the longer conversion cycle. Secondly, we managed to normalize our throughput, which in consequence resulted in lower purchasing volumes. Additionally, our lower one-off cost had as well a decreasing effect on the trade payables. Thirdly, inventories were slightly up, versus H1 2023, driven by the shift of transportation mode from air to sea for a portion of our new business, resulting in lower cost and emissions, but absorbing a certain quantum of capital. The normalization of our throughput largely offset the shift in transportation mode. Lastly, capital expenditures were on a similar level as the same period last year, underlying our commitment in sustainably reinvesting into our asset base. Please note that in the past few months, we have seized two M&A opportunities which are included in below guidance and are totaling up to a mid double digit million US dollar amount in terms of purchase considerations. In line with the trading update in July, our full-year constant currency revenue growth guidance is 9 to 12% versus previously 4 to 6%. For our organic growth, it stands at 4 to 7% versus previously 0 to 2%. Based on the healthy operating leverage and the effective cost management, we also expect higher operational EBITDA margin of around 25%. This is slightly lower than what we achieved in H1 when we benefited from some favorable service orders. With the second half of the year typically showing stronger cash flow conversion, we expect to reach the guidance of 90% to 100% cash flow conversion for the full year. requiring a strong focus on cash collection and inventory management. Also, with the two acquisitions announced this summer, we expect to remain well within the net leverage corridor of 0.5 to 1.5 times operational EBITDA. We further confirm the updated capital allocation framework presented in March of this year. It remains our goal to largely distribute the excess cash generated. We do not expect the acquisitions to have consequences on our capacity to pay an attractive base dividend, while we would see this amount to impact a potential share buyback. As stated in our shareholder letter, we expect our improved operational performance to have a positive impact on the year-on-year development of our financial performance and the dividend. With that, I would like to hand back to Daniel for his concluding words.