Dürr Aktiengesellschaft

Welcome to the DER Conference call. Dr. Jochen Weyroff, CEO, and Dietmar Heinrich, CFO of DER-AG, will present the DER Group's figures for the first half of 2024, followed by a Q&A session. I will now hand over to Andreas Schaller, Head of Investor Relations of DER-AG.

Thank you very much, Heike. Ladies and gentlemen, welcome, and thanks for your patience. Good afternoon, good morning to those of you in the US. This is our Q2 earnings conference call, and as usual, with me on the call, our CEO, Jochen Weibauf, and our CFO, Dietmar Heinrich. And they will present the results of the second quarter and first half year, 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 webpages, 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 is my pleasure to hand over to our CEO. Jochen, please go ahead.

Thank you, Andreas, as usual, for the short introduction and welcome also from my side. Let's start with the highlights of Q2 on slide five. Overall, it was a good quarter with a solid operational development and cash flow. We achieved a strong order intake of 1.3 billion euros, This brings us to a new record order intake for H1 of almost 2.8 billion. The main driver also in Q2 was our automotive business, where we received two large orders with triple-digit million-euro volumes and several orders of a double-digit million-euro size. We observe at this time that customers are awarding us mid- to long-term projects at an early stage in order to secure capacities. The project pipeline continues to look solid. Sales revenues were up 6% year-on-year to about 1.2 billion euros. The book-to-bill ratio stands at 1.22 after the first six months. The EBIT margin before extraordinary effects improved sequentially from 4.9% in Q1 to 5.2% in Q2. Our division's application technology and clean technology systems continued their strong margin performance. Your extraordinary effects in Q2 were temporarily higher than in Q1. They included one-time expenses for the divestment of Agamco and for capacity adjustment measures in production automation systems as we are realizing synergies. What is not included in the extraordinary effects in Q2 is the book profit from the sale of Agamco. This will come in Q3 and more than compensate for the increase in Q2. Free cash flow was solid in Q2, driven by the strong order intake and the continued disciplined networking capital management. Based on the positive development of the first half, we confirm our outlook for 2024. Looking at the high order intake level after six months, we see a good chance to reach the upper end of the guidance corridor for order intake, which is 5 billion euros. On slide six, we see the key financials for H1. Order intake increased by 8% and includes a consolidation effect of 146 million euros related to the BBS automation and INGECAR. Sales of 2.3 billion euros include consolidation effects of 167 million euros. The sales decline at HOMAC of about 14% was more than compensated. All other divisions grew organically. EBIT before extraordinary effects improved by 9%, and the margin was slightly higher year over year, despite the weakness of OMAC. Net income, however, declined by one-third due to higher PPA effects following the BBS automation acquisition and higher interest costs. In addition, as already mentioned, we had one-time expenses related to the sale of our GAMCO and capacity adjustments at production automation systems. The free cash flow of 44 million euros after six months is quite strong. This year, we benefited from the higher order intake and are well on track to reach our guidance. Let's take a closer look at the order intake on slide seven. I already mentioned the large automotive orders that we booked in Q2, as well as the consolidation impact from BVS Automation and INGECAR. These were the main drivers for the 16% growth in Q2 year-on-year. Especially the development in automotive, where customers are securing capacities, is remarkable and largely disconnected from current production levels. And the pipeline continues to look solid also for Q3. On slide eight, we see the geographical distribution of order intake. The Americas and Europe were quite stable, and Germany grew strongly due to the large order we received in Q1. It is interesting to note that the automotive demand is geographically well distributed. We received four large orders in the first half year, and they were distributed across the major markets. Germany, Europe, North America, and China. This clearly reflects the strong global setup of our operations close to our customer base. Let's continue with a quick update on sustainability. On slide seven, we can see our progress with the reduction of our own CO2 emissions. They were down by 51% in 2023 compared to the base year of 2019. Main drivers were the switch to green energy purchases, the buildup of own photovoltaic systems, and the modernization of our heating systems. We also revised our car policy to increase the share of emission-free vehicles. And there's more to come. In 2024, we will focus on the conversion to alternative sustainable heating solutions. We will also review our climate strategy and prepare an update for 2025. All the measures we have implemented and the improved level in reporting transparency are also reflected in our ESG ratings. On slide 10, we can see an overview of a number of important ESG ratings and how our company was rated over the past two years. The improvement is clearly visible. We are especially proud of our prime rating at ISS ESG and the platinum medal we received at Ecovados. Our ambition is to be among the best rated companies in our industry for all key ESG ratings. On slide 11, we would like to refer you to our recent sustainability report 2023. It was published on June 20th and includes all the details about our actions and performance in the area of sustainability. Let's have a look at our most recent M&A activity on slide 12. On July 1st, we closed the divestment of Agamco, a subsidiary belonging to industrial automation systems that supply systems for filling refrigerators, air conditioning systems, and heat pumps. Last year's revenues were about 45 million euros, and Agamco's EV stands at 47 million euros. In Q2, we incurred expenses in the order of a small single-digit million euros amount related to the sales. The cash inflow and book profit are not included in the H1 results, but will be reflected in Q3. We are happy with the successful sale. It contributes to our goal to reduce complexity and improve our business focus. A much larger lever to increase our business focus is with the strategic initiative that we announced in early June. Going forward, we will concentrate our activities more on the core activity of automating production processes with a special focus on sustainability. At the same time, we streamline our portfolio and set up and reduce the number of divisions from five to three. This is shown on slide 13. Specifically, we will combine our paint and final assembly systems and application technology divisions under the new division automotive. Integration work has started and the new structure will become effective on January 1st, 2025. In parallel, we are conducting a strategic review of the environmental business of our clean technology systems division, which also includes a potential sale. We are currently preparing for this review. A decision has not yet been taken, and we will keep you informed about important developments. The lithium ion battery business will remain with the Dürer Group in any case and will become part of the new industrial automation division that includes the balancing and tooling business as well as production automation systems. As we already talked about our plans in more detail in early June, I would just like to highlight a couple of key themes. On slide 14, we can see the rationale for the combination of the activities of pain and final center systems and application technology under one division automotive. On the one hand, we are further enhancing our customer proposition by combining the best technologies and offering a one-stop shop for the most sustainable solutions in the industry. On the other hand, we make use of sales and margin opportunities by realizing synergies in product development and sales, as well as project execution and service. We are convinced that this is the right way to further drive our value before volume strategy. The rationale for reviewing options for the environmental business of clean technology systems is described on slide 15. This business has grown significantly over the past years and shows a strong operational performance. It is the market leader in thermal oxidation and there is also further growth potentials beyond the core business in adjacent markets. We believe that it is a good time to review whether we are still the best owner or whether there are other options that can further accelerate the development of this business in a more focused way. In the end, we want to create a win-win situation for all stakeholders, as described on slide 60. We focus our business on our core competency of automation for production processes with leading efficiency and quality, which provides interesting growth and margin opportunities going forward. At the same time, we enhance our customer proposition in automotive by creating a one-stop offering of services and solutions based on the best technologies in the market. For the environmental business, we're looking for the optimal route to leverage growth opportunities. And we sharpen our profile towards the capital markets with a clear commitment to long-term value creation for our shareholders. This is one of the largest transformation projects in the history of Dürer, and we are very excited about the possibilities that we can unlock. Now let's have a look at the divisional development. We start with paint and final assembly systems on slide 18. Order intake in Q2 virtually remained at Q1's high level of around 500 million euros. As already mentioned, we received several large orders and customers are increasingly securing capacities for mid to long-term projects. The project pipeline looks solid and we see good chances of a good order intake also in Q3. Sales grew sequentially and year on year, we expect a further acceleration in half two. Looking at the EBIT margin before extraordinary effects, we can see a strong improvement in Q2. This is driven by strong service business and by increased cross margins in the equipment business due to our value before volume strategy. All in all, paint and final assembly systems is on a good track to reach the margin target of at least 6%. Let's turn to application technology on slide 19. Order intake continued to be strong and reached a new record level of 480 million euros in H1. Sales growth accelerated in Q2, and we expect further growth in H2. The service business continues to perform very well and is the major driver for profitability. EBIT before extraordinary effects grew significantly year on year, and the margin is already at the target level for the full year. The strong business development of application technology is a clear highlight. Next is clean technology systems on slide 20. The order intake improved sequentially driven by Europe, but it is still below the very strong H1 of last year. The pipeline looks good and still includes the larger battery coding project that we were talking about already during our last call. Sales revenue also grew sequentially driven by Europe and USA. The strong margin performance continued in Q2, even reaching close to 10% before extraordinary effects. Main drivers are high margin projects in execution and a very strong service business. We are very happy with the performance of this business and the strong project execution. Let's move on to slide 21 and the industrial automation systems divisions. Incoming orders and sales of Q2 were supported by the consolidation of BBS automation. Order intake in Q2 was still slow due to the delays and demand for e-mobility customers or from e-mobility customers. However, we received the first order from an automotive OEM where we realized synergies of BBS automation and team technique to provide a complete production line including assembly and testing. In addition, order intake in July was very good. and we received a larger order from a pharma customer who chose us also due to the increased size of our operations. Sales growth only included a small share of organic growth due to the delays in order intake. The EBIT margin before extraordinary effect improved year on year when we look at H1. However, there is still room for improvement. On the other hand, we still had projects with lower margins On the one hand, we still have projects with lower margins in execution. We also see some underutilization in North America and Western Europe due to the delays in order intake. On the other hand, the business in Asia is running very well. We are confident about the prospects of the business in sales and margins and focus on realizing synergies on the sales and cost side. In Q2, we decided to do a small adjustment of capacities in Germany at Teamtechnik that is also reflected in the extraordinary effects. The international cooperation within production automation systems is developing well and allows us to leverage cost advantages. Last but not least, let's take a look at HOMAG on slide 22. Order intake was stable at the level that we assumed in our guidance. The overall market environment has not changed yet. We still see weakness, especially in the single machine market. However, the service business continues to do well. The year-on-year decline in sales revenues in Q2 was similar to Q1 and within our expectations. The EBIT margin before extraordinary effects has stabilized at 3%. The capacity adjustment program was completed successfully without forced redundancies. The voluntary leave program was adopted and natural fluctuation helped in addition. As such, we will see the targeted reduction of 600 headcounts worldwide by the end of the year and are fully on track to reach the 25 million euro cost reduction in 2024 and another 25 million euros on top. So in total, 50 million euros cost reduction 2025 compared to 2023. With the reduced capacities, we have increased our resilience and are well positioned to benefit from a demand recovery once it occurs. Now let's move on to the service business on slide 23. The absolute sales volume in Q2 was flat quarter on quarter at a solid level. The share of total revenues declined due to the growing equipment business. This was partly compensated on the earnings side by an improvement in service margins. We continue to focus on growing our service business as an important factor to improve and stabilize our overall margin. And now, Dietmar, your turn for the financials.