Dürr Aktiengesellschaft

Good day, ladies and gentlemen, and welcome to the Doerr conference call. Dr. Jochen Weihrauch, CEO, and Mr. Dietmar Heinrich, CFO of Doerr AG, will hold the presentation followed by a Q&A session. I'd like to hand the call over to Mr. Andreas Schaller, Head of Investor Relations of Doerr AG. Please go ahead, sir.

Thank you, George. Ladies and gentlemen, good afternoon and good morning to those of you in the U.S., Welcome to our earnings conference call for the first nine months and the third quarter. Thank you for making yourselves available on short notice as we are one day ahead of our original schedule. The reason is the announcement of details about the capacity reduction program at HOMAC last evening in an ad hoc release. In order to give the complete picture and answer your questions in a timely manner, we decided to speed up publication of our Q3 earnings and provide all the information in one go. With me on the call today are our CEO, Jochen Weihrauch, and our CFO, Dietmar Heinrich. They will present the results of Q3 in the first nine months, some details regarding the planned measures at HOMAG, as well as the outlook, and we'll be happy to answer your questions afterwards. As always, our earnings presentation is available on our investor relations website, and we assume that you have it in front of you. Please be aware of our disclaimer regarding forward-looking statements on slide two. And now it's my pleasure to hand over to our CEO. Jochen, please go ahead.

Thank you, Andreas. Welcome to all participants on this call, also from my side, and thank you very much for joining. We made very good progress with the development of a roadmap for the capacity adjustments at HOMAC during the past few weeks and discussed them with the employee representatives at HOMAC yesterday. We defined the necessary steps that we need to do to cut costs to address the temporary lower sales volume that we expect in 2024. At the same time, we will use this situation to further strengthen HOMAC on a global level and drive profitable growth after the cyclical downturn. Before we get there, I would like to review our performance in the third quarter and talk about a change in the divisional structure that we have implemented following the BBS acquisition. Let us start with the overview of Q3 on slide five. The key highlight for us was the strong margin improvement, but let's work through the KPIs one by one. After the strong first half year, we saw a temporary decline in order intake to 922 million in Q3. This looks low, especially when comparing against the prior year's level of 1.3 billion euros, but it is explained by the timing effects in the automotive order intake. Project sizes in automotive can be very large, even almost reaching mid triple digit million euro amounts, and therefore it makes a big difference at what point in time a project is booked. In Q3 of 22, we booked two very large automotive orders in North America. This year, we booked large orders in the first two quarters, but not in the third quarter. However, the pipeline remains solid, and we expect a stronger Q4 with respect to automotive. Water intake at HOMAC dropped below 300 million euros in Q3. This was lower than expected and an important factor in the decision to go for the capacity reductions. Sales revenues grew by 4% year-on-year and quarter-over-quarter to 1.16 billion euros. This is a bit slower than the 7% growth we achieved in the first nine months. We have seen delays in the execution of a couple of automotive projects because the buildings were not provided on time by the customer. This is outside of our sphere of activity, and therefore we have to accept it as it is. For revenues, we also expect further growth in Q4. The order backlog increased to 4.5 billion euros due to the acquisition of BBS Automation. Now we come to a very important figure from our point of view. The EBIT margin before extraordinary effects rose to 7.1% in Q3. We will look at the divisions in a moment, but I would already like to mention the new quarterly record of 9% that HOMAG still achieved in Q3. Main drivers of the margin improvement on the group level were the execution of projects with higher margins in automotive, IR service share, and our continued focus on efficiency improvements. Pre-cash flow generation was positive with 15 million in Q3, despite the buildup of networking capital during the quarter. Based on the development so far, we confirmed the guidance for order intake, sales revenues, EBIT margin before extraordinary effects, and free cash flow for 2023. Based on the roadmap for capacity adjustments that we discussed yesterday for HOMAC, we decided that we will book the expected restructuring charges of between 35 and 50 million euros already in 2023. Accordingly, we've adjusted the guidance for the reported EBIT and net income. On slide six, we see the key financial indicators for the first nine months of 2023. Order intake declined 11% due to the weak demand at whole market. Sales revenues grew 7% driven by oil divisions. EBIT before extraordinary effects increased by 26% and the margin improved from 4.8 to 5.7%. Net income rose by 35% accordingly. Finally, free cash flow came in at 8 billion euros, which is below last year's level that benefited from high prepayments in Q3. We expect solid cash generation in the fourth quarter and remain on track to reach the guidance. Let's look at the order intake on slide seven. I already mentioned the lack of large orders in Q3 due to timing effects. The automotive project pipeline continues to look solid, and we are expecting a stronger Q4. New orders are coming in with improved margins for all divisions except woodworking, machinery, and systems. Looking at the first nine months, the book-to-bill ratio stood at On slide 8, we see the geographical distribution of order intake. Orders from China declined from the very high levels we saw in the past years. As already mentioned, we booked two large orders in North America last year, which explains the decline year-on-year after nine months. Orders from Europe outside Germany were up, and we are seeing a good demand from Asia outside China. our global footprint is a clear advantage for capturing demand. Now let's have a look at the changes we made to our divisional setup on slide nine. With the acquisition of BBS Automation, the automation business has now reached a critical mass and there are a lot of new synergy potentials within the business. Consequently, we decided to take it out of the paint and fine assembly systems division and combine it with the former measuring and process systems division to form a new division, which we call industrial automations. This division consists of two business units, the former measuring and process systems and production automation systems with BBS automation, Teamtechnik and Tecuma. Jörg Brunke has taken on the role of CEO of the new division. Production automation systems is run by Josef Wildgruber, the CEO of BBS Automation. You might ask why we put the new division together like this, and I would like to mention some thoughts behind the new setup. Both, measuring and process systems, as well as production automation systems, are machinery businesses and will act together in certain market segments. Combining their solutions, they, for example, provide become the only supplier for e-mobility customers who can provide consulting, assembly, balancing, and testing of e-motors out of one hand. In fact, already before the acquisition, Schenck was a very relevant supplier of balancing machines for BBS, for example, regarding assembly lines for e-drives. In addition, some machines of the balancing portfolio provide a high degree of automation, for example, the automated tire fitting in tire and wheel lines. With the new division, we provide a sharper profile of our business activities going forward. On slide 10, we can see the new divisional setup. We stay with five divisions in total. In the different columns, we see the description of the areas of activity, the current headcount, and the sales volume of 2022, with the exception of industrial automation systems, where we show the performer sales for 2022. With the acquisition of BBS Automation, we've taken another step in our strategy for profitable growth. Now, let's have a look at the divisional development in the new setup. We start with paint and final assembly systems on slide 12. As we follow the new divisional setup, we have taken production automation system figures out of the prior quarters. I already mentioned the timing effects in order intake in Q3 and that the order pipeline remains solid. As such, we expect a higher order intake in Q4. I also told you that we experienced delays at a couple of projects due to customer-induced delays in civil constructions. This temporarily slowed revenue generation. On the other hand, the EBIT margin before extraordinary effects improved significantly in Q3 and for the first nine months. In Q3, we reached more than 6%, which is in line with our strategic target for this business. We believe that this is not the end of the story and that we can do even better as order intake margins continue to improve. You can also see how this margin translates into high ROC values due to the capital line nature of this business. All in all, we now start to see the benefits of our value before volume strategy. Let's turn to application technology on slide 13. Here, the same comments apply regarding order intake and sales generation like a paint and fine assembly system. We also see a strong EBIT margin improvement to 11% before extraordinary effects in Q3, which is well in line with our target for this business of more than 10%. The margin improvement was driven by a strong service business with solid margins. Next is clean technology systems on slide 14. Order intake in Q3 was a bit weaker due to delays in decision making at customers, some of them rethinking their regional strategy. Sales growth remained solid and was mainly driven by the execution of projects in Germany and the USA. Also, this division could significantly improve EBIT margins due to strong project execution and an increase in service margins. At 8.3%, we are well above the strategic target level of 6% for this kind of business, and this directly translates into a very high ROC. Now, let's have a look at our current, at our new divisional, sorry, at our new division, Industrial Automation Systems, on slide 15. The numbers include Team Technik and ECUMA that were formally reported under Paint and Fine Assembly Systems, the former division, Measuring and Process Systems, and one month of BBS Automation. Order intake in Q3 and the first nine months was lower than in the prior year, which is mainly due to timing effects. In the automation business, we are also looking at larger project volumes, and timing plays an important role. We expect a strong order intake in the fourth quarter, which has already gained momentum in October. Sales revenues grew by more than 20% in the first nine months in Q3, which was partly driven by the consolidation of BBS automation. But even without the consolidation effect, sales volumes were up double digit in the first nine months. The EBIT margin before extraordinary effects improved compared with Q3 and the first nine months of last year. The margin benefited from the acquisition of BBS automation and the solid performance of measuring and process systems. On the other hand, we experienced margin dilution due to some long run projects that are currently still being executed at one of Team Technic sites. They were taking on during Corona times when demand was relatively low and were impacted in addition by cost inflation. We expect them to flush out over the coming quarters. In addition, we expect synergies with BBS to start to kick in and at the same time, we constantly provide best practices from the DEER Group wherever it makes it. We are very excited about the new division and we will work hard to realize its potential going forward. Now we come to HOMAG on slide 16. Order intake in Q3 declined to less than 300 million euros. We only see limited downside potential from here and there are some larger projects in the pipeline. However, project timing is uncertain and therefore we took action. Sales revenues still benefited from the large order backlog and remained above 400 million in Q3. For the first nine months, we recorded a small sales growth of 2%. The EBIT margin before extraordinary effects further improved and reached a new quarterly record of 9%. Main drivers were the price increases conducted in the past as well as cost savings and efficiency improvement measures. OMAC is a strong EBIT contributor in 2023, and with the measures we are taking now, we want to strengthen the resilience and further improve the business. An important part of our strategy is a strong service business. On slide 17, we can see that service sales grew faster in Q3 than the overall sales, and the service share improved to 29.8%. At HOMAG, we build up service capacities in 2022, and we now see that this pays off as we could even slightly grow the service business in a market environment where some customers have very weak utilization. On the group level, service margins further increased and supported the positive margin development in Q3. Now, Dietmar, and over to you for the financials.