Dürr Aktiengesellschaft

The conference is now being recorded. Welcome to the DUR conference call. Dr. Jochen Weyrauch, CEO and Dietmar Heinrich, CFO of DUR AG, will present the DUR Group's preliminary figures for fiscal 2023, followed by a Q&A session. I will now hand over to Andreas Schaller, Head of Investor Relations of DUR AG.

Yes, thank you very much, ladies and gentlemen. Good afternoon and good morning to those of you in the US. Welcome to our earnings conference call. With me on the call today are our CEO, Jochen Weiberg, and our CFO, Dietmar Heinig. And they will present the preliminary results for the financial year 2023, as well as the outlook for 2024. 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. Jan, please go ahead.

Thank you Andreas. Welcome to all participants on this call, also from my side, and thank you very much for joining. Let me start with some short remarks on the past year on slide five. Operationally, 2023 was, in most regards, a good year. We increased sales revenues by more than 7 percent and reached a new record level of 4.63 billion euros. EBIT before extraordinary effect improved by 21 percent, and after a slow start in Q1, we reached a margin of 6.1%, thus meeting our target range. All divisions contributed to this profitable growth. Last but not least, we could convert the higher profitability into a strong free cash flow and achieve more than 100 million euros in the fourth year in a row. These improvements were only possible because of the high dedication of our more than 20,000 employees. And I would like to thank all of them for their strong commitment. At our woodworking machinery and systems division, we were facing a special situation in 2023. HOMAC successfully worked on reducing the very high backlog from the peak years of order intake in 2021 and 2022, and reached a new record margin of more than 9% in the second half of 2023. At the same time, we had to realize that the order intake was lower and the cyclical downturn demands stronger than expected. As a consequence, we announced the capacity reduction program in November to improve the resilience of Formag. And we are convinced that the business will emerge stronger from this downturn and has the potential to reach at least 10% margin before extraordinary effect in a normal environment. My last initial remark is on our strategy to develop our portfolio towards profitable growth. In 2023, we made considerable progress with this strategy. First, we accelerated growth in production automation systems with the acquisition of BDS Automation. With this move, we reached critical mass in the top three position in the industry. In addition, we unlocked many synergies that we will be working on this year. Second, we strengthened our battery business with the acquisition of INGECAL and the technology partnership with Leica. We extended our offering and at the same time positioned us as one of the innovators for the next technology generation of electrode dry coating. In our established businesses, we further improved the gross margin of the service business. In addition, we saw the first outcome of our value before volume strategy with margins improving and paying environment services. All in all, I think we have made good progress in 2023, and we look cautiously optimistic on 2024. We are determined to do everything it takes to improve the group's earnings resilience and portfolio. This is why we choose taking action as the headline for our 2023 report. Let's move on to the overview of 2023 on slide six. Order intake reached 4.62 billion euros, which is slightly above the midpoint of the guidance. When we published Q3 earnings, we saw the potential to even reach the upper end of the guidance based on the solid project pipeline in automotive. We have already mentioned many times that automotive projects can be quite large, and winning a project or not can easily make a difference of a couple hundred million euros in order intake. The fourth quarter, we saw a more aggressive behavior of competitors. In that situation, we stuck to our value before volume strategy at pale and fine assembly systems and left lower margin projects to competition. the division reached almost 1.5 billion euros of order intake, which is not too far from the record level of 2022. And application technology reached a new record order intake, and OMAC achieved more than 400 million euros order intake in June 4. This was mainly due to two large projects in China and Spain, but does not change the overall market picture. The order backlog increased by 4.7% year-on-year, to 4.2 billion euros, mainly due to the acquisition of BBS Automation. The sales record of 4.63 billion euros was supported by increases in all divisions and by BBS Automation already contributing 107 million bids. The book-to-bill ratio stood at 1.0 despite the decline in money intakes. The EBIT margin before extraordinary effects reached 6.1% for the full year, and 7% in Q4, a big contrast against the 4.1% in Q1. We managed to finally reach the guidance range. Net income reached the lower end of the revised guidance range with 110 million euros. This was because special expenses reached 89 million euros in 2023, as we booked provisions of about 50 million euros for the capacity and cost cuts at Huma. On top came PBA effects and, of course, transaction costs related to the acquisition of PBS automation. Another highlight is the free cash flow of 129 million euros, thus clearly exceeding expectations. Once again, we were very disciplined with CapEx and networking capital management. Dietmar will go into more details in a couple of minutes. Slide seven simply shows the percentage changes in the figures I have just described, so it doesn't require further explanation, and we move on to the next. On slide eight, we can see the comparison of the actual results with the original guidance from February and the last guidance provided in November. Order intake came in slightly above the midpoint of the guidance range due to the reasons explained before. Sales revenues are are also very close to the midpoint of the guidance. The EBIT margin before extraordinary effects reached the low end of the guidance range after continuously improving quarter to quarter. The reported EBIT margin came in slightly below the guidance range due to the large extraordinary effects. Earnings after taxes reached the low end of the guidance that we adjusted in November, and free cash flow exceeded the guidance that was unchanged during the year. Due to the strong cost increases for bidding materials, we reviewed our CapEx program at HOMAC. This is why the CapEx to sales ratio came in lower than planned at 3.4 percent. Overall, we met the operational targets and the provisions for the self-help measures at HOMAC are an investment into higher earnings receipts. On slide nine, we see the order intake by quarter. After the weaker Q3, we saw an improvement in Q4. There was more potential for order intake in Q4, but we prefer to continue with our value-before-volume strategy in pain and fine assembly systems as described before. Moreover, we saw some delays in orders from battery producers, except for HOMAC, the project pipelines look solid entering into 2024. On slide 10, we see the geographical distribution of order intake. The order decline in China reflects the local economic slowdown, but it's not that significant and in line with the overall decline in orders for the group. The Americas saw order levels normalizing after the record year of 2022 with several large projects. Europe and Asia without China who are able to grow their intake with larger automotive orders in Asia. Now, let me quickly recap the achievements regarding M&A. With the acquisition of BBS Automation, we have established a new automation powerhouse with performer sales of about 500 million euros and a top three position in the market. We have unlocked various synergies due to the complementary portfolio and the partly overlapping geographically footprint. For example, we closed the TeamTechnik site in China and moved these operations to BVS Automation in Suzhou. The combination of TeamTechnik, Ecuma, BVS Automation, and Kale generates a lot of interest at customers as we have the critical mass and the financial background to manage larger projects in the automotive, medtech, and consumer sectors. Another M&A focus was battery production. We acquired Ingecard, a French specialist for calendaring equipment. This expands our product offering, and at the same time, we got a hold on equipment that can be used for the next generation of electrode coating technology. I'm talking about dry coating technology, which will significantly lower energy consumption in battery production. The important precondition for dry coating is the right recipe for the coating material. That is why we partnered with Lycap, a California technology provider, with its patented activated dry electrode technology. Both companies, Ingecal and Lycap, will help us tapping the huge potential of dry coating. Let's have a quick look at the progress we made with reducing scope 1 and emissions on slide 13. We concluded our switch to green electricity, installed further PV systems, invested about 20 million euros in sustainable buildings, and revised our car policy in order to incentivize the use of emission-free vehicles. All in all, we reduced scope one and two emissions by about 55 percent compared to the base year of 2019. and are well on track to reach our 70% goal by 2030. Now let's have a look at the diversional development. We start with paint and fine assembly systems on slide 15. I already mentioned the reasons for the lower than expected order intake in 2004. Nevertheless, hook to build stood at 1.08, and full year order intake was not far from the record level of 2022. The project pipeline remains solid and includes, among others, the first line of Mercedes in the framework of our partnership. Sales revenues grew to a new quarterly record in Q4, and we reached a service share of more than 30% in the full year. We improved the EBIT margin before extraordinary effect due to the consistent application of our value before volume strategy. In Q4, however, we had a margin impact due to increased expenses for a single project. ROSI in the asset line business improved to more than 26 percent. We made good progress with the margin in 2023 and go for the mid-cycle target of at least 6 percent in 2024. Application technology reached a new record order intake of almost 720 million euros. In Q4, we received some orders that we expected for 2024. Sales revenues grew by 4.7% and service sales clearly outperformed equipment sales. EBIT margin before extraordinary effects almost reached already the mid-cycle target of at least 10%. and came close to the pre-corona levels. Clean technology systems order intake in Q4 was impacted by decision delays from customers in the battery and chemical industries. The extremely high prior year order intake included two larger orders of solvent recovery. Sales revenues grew by 5.5% and were mainly driven by projects in North America and Germany. The key highlight is the significant margin improvement. At 6.3%, the EBIT margin before Extraordinaries was in line with our mid-cycle target of at least 6%. This might not sound a lot when comparing to a double-digit margin in machinery business, but look at the more than 50% return on capital employed of that asset line business. In 2024, our focus will be on bringing the battery business up to speed. Now let's have a look at the industrial automation systems division on slide 18. After the acquisition of BDS Automation Q3, order intake reached a run rate of close to €200 million in Q4. Sales revenues were even slightly above, at €230 million. The EBIT margin before extraordinary effects reached 7.1%. strong performance of measuring new process systems, solid margin and BBS automation, and still relatively low margin from Team Technique due to some legacy projects that we will wash out over the coming quarters. The extraordinary effects include PPA effects for BBS automation and some smaller optimization charges as we already realized some synergies and closed the Team Technique site in China, as already mentioned. In 2024, we will focus on top and bottom line synergies and expect strong sales growth and improving margins. Now we come to OMAC on slide 19. Order intake was relatively strong in Q4 due to two larger orders in China and Spain. As these projects have long lead times, they will only partially support utilization in 2024. The underlying market weakness has not changed yet, and we still expect recovery only for the end of 2024. Sales revenues for the full year increased slightly to a new record high as we work off the high order backlog. EBIT margin before extraordinary effects reached more than 9% in the second half based on efficiency improvements, cost cutting, and price increases of the past. In 2024, we will reduce capacities, save costs, and secure utilization. At the same time, we will work on growing the service business and further optimizing operations, for example, with our new logistics centers. Based on lower headcount and fixed costs, OMAC is expected to be stronger after the downturn and resume its path towards the 10% march. Slide 20 shows that we reached about the same service share of revenues as in 2022, while at the same time we improved the service margin. This is a very good result considering the market downturn at home. Service remains a solid profit contributor and will be further strengthened going forward. And now, I give my hand over to you, Father Fernand. Thank you, Jochen, and welcome to everybody also from my side. Slide 22 gives an overview about the most important key figures Jochen already described. This will help you with updating your models. However, I would like to directly jump to slide 23. This one shows the revenue development over the last eight quarters. In 2023, we increased sales revenues every quarter and reached a new record in Q4, with more than €1.3 billion in a quarter. This strong finish is comparable to last year. BVS Automation contributed €107 billion, mainly in Q4. The geographical distribution shows how auto intake from 2022 translated into sales in 2023. The Americas and Europe were gaining share, whereas China lost share. Overall, sales are geographically well diversified. Now, let's move to slide 24. We reached almost 100 million euro EBIT before extraordinary effect in Q4 at a margin of 7.0%. Cross-profit was the main margin driver, benefiting from the improved supply chain, the high service margin, and better project margins. Reported EBITS likely declined from €205 million to €191 million due to the higher extraordinary effects of €-89 million compared with €-26 million in the prior year. The main difference were the provisions of about €50 million for the capacity reduction at HOMAC. In addition, we had acquisition-related costs and the small optimization charges in the automation business, Johan mentioned before. On slide 25, we can see the free cash flow development. Q4 was very strong, driven by the increased profitability as well as disciplined management of networking capital and capex. We saved capex by moving from a new construction to renovating office buildings and finally spent 3.4% of sales revenues. The high free cash flow of €129 million allowed us to contribute internal financing to the M&A activities of 2023. Networking capital can be seen on slide 26. After the acquisition-related increase in Q3, we can clearly see a reduction of networking capital by the end of Q4. A major driver for this improvement was our focus on reducing inventory Looking at the full year, we almost compensated for the reduced prepayment level and limited the operational increase of net working capital to €23 million. The rest was acquisition related. Despite the acquisition related increase in net working capital, our base working capital came out at the low end of the target range of 40 to 50 days with 40 2.4 days. A disciplined management of networking capital remains high on the agenda for 2024 in order to support free cash flow generation. For the next slide, slide 27, we can see the development of net debt. After the acquisition-related increase in Q3, net debt came down to 517 million euro, well within the guidance range. In addition to the external acquisitions, we spent a low double-digit million euro amount to buy out non-controlling shares of subsidiaries. In addition, some WOMAC shares offered to us were acquired at a guaranteed price. Foreign exchange rate effects increased net debt by about 15 million euro. The key driver for the reduction of net debt in Q4 compared to Q3 was the high free cash flow. At the end, the leverage stood at 1.6 times net debt to EBITDA, which is well within our target of staying below two times. The balance sheet remains solid after the acquisitions, and the same applies to our liquidity headroom that we can see on slide 28. Cash amounted to about €1 billion at year-end and we have an undrawn cash credit line at our disposal. We increased this credit line in December 2023 from €500 to €750 million in order to adjust the size to our growing business. The syndicated bridge loan of €300 million that we used to finance the acquisition of PPS Automation as a maturity of 12 months, but can be extended by another 12 months if needed. As we continue to expect a high liquidity level, we currently plan to pay back the bridge load in 2024. At the same time, we plan to further optimize our funding structure by placing another green shul shine load in 2024. Our focus remains on generating cash from operations and extension network and capital management. I hand back to Jochen for the outlook. Thank you very much, Dietmar. Let's turn to the outlook and to slide 30. The demand for our solutions is driven by fundamental trends, such as the decarbonization of production, the manufacturing of products for a CO2 society, like wooden houses or EVs, and the automation of production as skilled labor becomes scarce, and production is reassured in the industrialized countries. E-mobility is a growth opportunity for us in many ways. Slide 31 shows the current expectations regarding the ramp-up of EV production over the next years. We not only benefit from the amount of EV paint jobs and assembly lines, but also from additional battery production and the need for automated solutions, for example, for EV powertrain assembly. Let's stay with automation for a second. The growth prospects are shown on slide 32. Immobility is only one of the drivers. Very interesting to us from a margin perspective is MedTech as more and more companies in the life science industry look at the automation of their production lines due to the increasing regulatory requirements. Demand in automation should grow by a high single digit percentage over the coming years. and we are well-positioned to capture this growth with BBS automation and t-dash. Now, let's take a look at the guidance for 2024 on slide 33. With regards to order intake, we see potential for growth, but expect at least a stable development. Accordingly, the target range is between 4.6 and 5.0 billion euros. with the upper end reflecting the record level of 2022. For sales revenues, we expect growth to between 4.7 and 5.0 billion euros, which corresponds to the growth rates of between 2 percent and 8 percent. These growth rates are a bit lower than we originally forecasted, 5 to 10 percent, as order intake in paint and final assembly systems was a bit lower than expected in 2022. We assume that all divisions except woodworking, machinery, and systems will grow sales revenues in 2024. The biggest growth is expected for industrial automation systems due to the full-year consolidation of BDS automation and healthy organic growth. For OMAC, we anticipate a sales decline in the mid-teens percentage range based on the lower order intake in 2023. The guidance for EBIT margin before extraordinary effect remains at a range of between 4.5 and 6 percent as given in October 2023. The extraordinary effect should decline to 45 million euros in 2024 and mainly consists of PPA effects. This translates to reported EBIT margins of 3.5 to 5 percent. Due to the higher capital employed after the acquisition of BBS Automation, we expect a return on capital employed of between 9% and 40%. Due to the higher debt level, interest expenses are expected to increase and lead to a financial result of around minus 40 million euros. As a consequence, we forecast a net income of between 90 and 150 million. We are committed to achieving a positive free cash flow in 2024, despite the expected lower margin and the cash out for the capacity reduction . We target free cash flow to be in the range of between zero and 50 million euros. We will remain disciplined with CapEx and plan to spend between 3% and 4% of sales. Taking into account the dividend payments and possible small M&A activities we assume a moderate increase in net debt by the end of 2024. Our clear focus for 2024 is on margin improvement in all divisions, except woodworking, machinery, and systems, where we reduce costs and capacities to increase the resilience of the business. On page 34, we can see the outlook by division for order intake, sales revenues, and EBIT margin before extraordinary. Let's start with order intake. For the automotive business, we expect a stable development overall. The project pipeline remains solid, and we see the chance of a stable or increasing order intake at high-end finance and resistance. By application technology, we forecast a decline in some of the orders expected for 2022. Demand for battery technology is assumed to drive growth in the water intake for clean technology systems. Water intake of industrial automation systems is expected to grow significantly due to the full year consolidation of BBS automation and organic growth. For woodworking machinery and systems, we continue to see a stabilization of demand on low levels of 300 to 350 million euros per quarter and an improvement in demand not before the end of 2024. However, there might be a single larger project materializing now, and then that could temporarily increase order intake as seen before. Now let's turn to sales revenues. We expect that all divisions except woodworking, machinery, and systems will grow sales revenues in 2024. The biggest growth is expected for industrial automation systems. For HOMAC, we expect a decline in mid-teens percentage range based on the low water intake in 2023. Last but not least, we take a look at the EBIT margins before extraordinary effects. For paint and fine assembly systems and clean technology systems, we expect them to be in line with the mid-cycle target of at least 6%. For application technology, we assume around 10%, which is slight increase on 2023 when we had a very strong service business. The margin of industrial automation systems is expected to improve and make a step towards the mid-cycle target of at least 10%. We will still work on some legacy projects with lower margins, and the integration process will also keep us busy. The assumption for homework remains unchanged at 2 to 4%. Just a quick reminder regarding our strategy and targets on slide 35. We target for sales of more than 6 billion euros by 2030, and we already talked about our growth areas in automation, battery production, and solid wood construction. This translates into a CAGR of 5% to 6%. In 2023, we did a bit more than 7%, so we are well on track. We target at least 8% EBIT margin before extraordinary effects in the mid-cycle. With our mix of capital-like construction business and high-margin machinery business, this should translate into return on capital employed of 35%. Due to the downturn at HOMAG, we will probably not reach 8% this year or next year, but we will continue to improve efficiencies and the setup of our businesses continues. Now let's summarize on slide 37. Operationally, 2023 all in all was a good year with record sales revenues, a solid margin improvement before extraordinary effects, and a strong free cash flow. We achieved a margin improvement at Walmart to more than 9% in the second half of 2023. We cut capacities to weather the downturn and realized a full margin potential of HOMA. We made significant progress with developing our portfolio towards higher margin growth markets with the acquisition of DBS, Automation, and EJCAP. Our fundamental demand drivers are intact. We are a key enabler for the efficient and sustainable production of goods that billions of people use every day, as written down in our purpose statement. In 2024, we will continue to take action and strengthen our profitability on our way towards our long-term goals. Thank you very much for your attention. Now we're happy to answer any questions you might have.