Dürr Aktiengesellschaft

Welcome to the DUR conference call for the preliminary figures of 2024. I will now hand over to Andreas Schaller, Head of Investor Relations of DUR AG.

Thank you, Anna. 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 are our CEO, Jörgen Weiderhoff, and our CFO, Ludmar Heinrich. They will present the preliminary results for the financial year 2024, as well as the outlook for 2025, 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 refer to 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, whether from my side, and thank you very much for joining. Let me start with some short remarks from the past year on slide three before we go into detail. When we were talking with you 12 months ago, we promised to take actions to improve the group's earnings resilience and portfolio. And we have made some progress meanwhile. We achieved a solid operational performance in a challenging environment with a new order intake and sales record. and EBIT before extraordinary effects close to the upper end of the guidance, and a strong free cash flow exceeding 100 million euros for the fifth year in a row. This was driven by operational improvements. I would like to highlight a couple of them. The value before value volume strategy at pain and final assembly systems pays off, and we met our mid-cycle margins target. Our environmental business achieved a record margin, well driven by strong project execution. We successfully implemented our capacity reduction program at OMAC. The targeted cost savings of 50 million euros will become fully visible in 2025. With respect to our portfolio, we took the capital market feedback seriously that our group structure was relatively complex. We decided to focus more on our core competency of automating production processes with a focus on high resource efficiency and cost savings for our customers. We call this sustainable automation. As a first step, we sold the filling business of Akamco. Then we merged paint and file assembly systems and application technology in the new automotive division. Moreover, we put our environmental business for sale as it is not directly involved in the value-add process of our customers. This process is progressing well, and we are on track to reduce the number of divisions from five to only three after it will be completed. Last but not least, we updated our dynamic strategy and set our emission reduction target to 30% by 2035, in line with the 1.5 degrees goal. As the environmental business is headed for sale, we will show it as discontinued operation in our upcoming annual report. This also has an impact on the agenda of today's presentation that is shown on slide four. We will first present the highlights, the divisional performance and the financials for the DIR group as a whole in order to make it as comparable as possible to our guidance and past reporting. In addition, we will also show the financials of the continued operations and the divisional performance according to the new divisional setup. In the outlook, we will look at both the DIR group as a whole as well as the continued operations. We hope that this provides enough transparency for you. Let's first turn to the highlights of the Dirk Group as a whole on slide six. In our view, 2024 is a solid base year for profitable growth. We achieved a record oil intake of 5.14 billion euros. The main driver was our automotive business where customers continued to invest in modernization and replacement of their own painting lines. The order backlog reached 4.45 billion euros, with a majority consisting of paint job projects with an average reach of about 18 months. Revenues reached a new record of 4.7 billion euros. The book-to-bill ratio was 1.09 for the full year. The EBIT margin before extraordinary reached 5.5%, well within the upper half of our guidance range of 4.5%. to 6%. Net income came in at 102 million euros and was a bit lower than the prior year due to higher interest and tax expenses. Free cash flow was strong in 2024 and reached 157 million euros. The main reason for this high level were large payments of customers that came in earlier than scheduled in December. On slide seven, we see the key financial indicators for 2024. Oil intake was up 11% and includes a consolidation effect of 235 million euros related to the BBS automation in Jakarta. Sales revenues grew slightly by 2% and include consolidation effect of 230 million euros. This compensated for the 13% decline in sales at HOMAC. In addition, we achieved sales increases in the automotive and clean technology businesses. EBIT before extraordinary effects decreased by 8% and the margin was 60 basis points lower. The decline is mainly due to the weaker margin of HOMAC that was compensated to a large extent by the strong performance of the automotive division. Net income decreased by 7% year-on-year. 51 million euros, and we had higher interest and tax expenses. Free cash flow increased 21% due to the before-said early customer payments in a high double-digit million-euro amount. On slide 8, we can see the comparison of our actions against the targets for last year. We met and partly even exceeded the targets. Order intake exceeded the upper end of the guidance as we received two larger orders in Q4. The paint job contract from an American EV producer and the first Gigafactory order for battery coating lights. Some of the automotive orders have long lead times and do not directly translate into revenues in 2025. This is also reflected in our outlook. Sales revenues came in at the lower end of the guidance due to project delays and weaker demand for production automation. Margins and return on capital employed reach the upper half of all guidance. Earnings after taxes came in closer to the lower end of the guidance. This is due to higher interest and tax expenses, including a one-off from a tax provision in the low double-digit million-euro amount. Free cash flow and net financial status were both clearly better than expected due to already mentioned early payments in a high double-digit million amount. This timing effect will balance out in the current year, which is reflected in our outlook. Let's take a closer look at the order intake on slide nine. Compared to last year, the order levels were higher for each single quarter. A major driver was the large order we received in Q1 based on our partnership with a large German automotive OEM. In addition, we received many orders for multi-year refurbishment projects focusing on energy efficiency and comprehensive automation. In Q4, we booked the first order for battery gigafactory in Europe. At HOMAG, project business for cross-laminated timber lines, and service business held up pretty well, but the single machine business continues to be weak. While MedTech orders developed well in production automation, orders from Tier 1 automotive suppliers declined as they were adopting a wait-and-see approach. The project pipeline in automotive as such remains solid. Slide 10 shows that order intake was growing in the Americas and Europe, Orders in Germany reflect the large order already mentioned that we received in Q1. In China, we see a decline reflecting the current weaker economic development. The lower level for the rest of the world is due to a strong base effect from a large order that we received in the Middle East last year, actually in 2023. Let's turn to our portfolio management activities. We started in the first half of 2024 with the sale of the filling business of Akamco. We recorded a book profit of 17.5 billion euros and a net cash inflow of 27.8 million euros from the transaction. This was the first step to divest assets that are not considered to be core. Shortly after this divestment, we announced a much larger program to streamline the setup of our group. On slide 12, we can see the old structure with five divisions. As part of the program, we merged the paint and final assembly systems and application technology divisions to form the new automotive division. At the same time, we started with a review of strategic options for our environmental business. On slide 13, we can see the target structure and the progress we have made so far. The automotive division went live on January 1st. Effective the same day, we moved our lithium-ion battery business from clean technology systems to industrial automation. The sales process of the environmental business is running, and we keep you informed about major developments. Another important topic and part of our business model is the reduction of CO2 emissions based on the industry-leading resource efficiency of our solutions. We have updated our climate strategy and moved the base here to 2024. Slide 14 shows an overview of the emission levels in 2024 and the mid- and long-term targets we have set. The majority of emissions is generated in downstream operations by our customers who are using our machines. This is part of the so-called scope three emissions that we target to reduce by 30% by 2035. Our own emissions, called scope one and two, make up less than 1% of the total. Nevertheless, we have a strong focus and want to reduce them by 55% until 2035. The targets are in line with the 1.5 degree target of Paris, and have been verified by the German climate tech company with a name right based on science. We've already made a lot of progress with the reduction of scope into emissions, as can be seen on slide 15. Since 2019, we reduced them by 56% due to a mix of measures, including the shift of green electricity, investments in photovoltaic systems, and sustainable buildings, as well as the reduction of gas consumption. On slide 16, we see the targets going forward. We want to reduce scope one and two emissions by another 55% until 2035, with a focus on electrifying our vehicle fleet and further reducing gas consumption by moving to heat pumps, for example. With respect to the scope three emissions, we target a 30% reduction until 2035. This will be driven by an increasing portion in our sales of products and solutions that are optimized for lowest energy consumption. On top comes the general growth of the share of green electricity in the grids worldwide and at our customs. Now let's have a look at the performance of our divisions in the old structures. We start with pain and fire in the center systems on slide 18. Already mentioned the record order intake driven by modernization and related cost savings, including the very large order in July. Revenue growth was at the low end of expectations due to some delays at customers. The book-to-bill ratio was very high at 1.3. In Q4, margins were strongly driven by a high service share and we reached an EBIT margin before extraordinary effects of more than 7% for the full year. This is an excellent achievement and proves our value before volume strategy being successful. At application technology on slide 19, we note another record volume take of more than 800 million euros, mainly driven by modernization and replacement. Sales revenues grew by almost 10%, driven by equipment sales. At the same time, the service share remained high, but the bill stood at 1.2 in 2024. The EBIT margin before extraordinary effects reached the mid-cycle target of at least 10% after a strong finish in the seasonally strong June 4. Next, please acknowledge the systems on slide 20. Truth orders were up significantly year on year due to a large order of coding equipment for battery gigafactory. Sales revenues grew 3% with a high contribution from North America. The service remained stable at a good level. The EBIT margin before extraordinary threats surpassed the guidance corridor and reached our mid-cycle target driven by a very good service business and flawless project execution. Let's turn to slide 21 and the industrial automation systems division. Two-four orders continue to be slow due to delays in demand from immobility customers. The metric business, however, remained robust and we won large projects during the past quarters. Order intake and sales revenues in 2024 were driven by the full-year consolidation of PPS automation. Balancing business showed a very solid development. The EBIT margin before extraordinary effects improved slightly from Q3 to Q4, but was still below our expectations. In production automation, we are still busy with the integration of PPS automation and best practice transfers. The regional performance is quite diverse. We have businesses with a high utilization that achieve double-digit EBIT margins, for example, in China or Malaysia, and we have others with underutilization and weak legacy projects. All in all, we are convinced that we are very competitive in this market and will focus on synergies and operational improvements in 2025. Last but not least, Let's take a look at HOMAC on slide 22. Order intake was stable at the guided level. The market environment has not yet changed. We continue to see weakness in the single machine market in particular. However, the service business continues to perform well. The year-on-year decline in sales of 13% was as expected. With 3.6%, we reached the upper end of the guidance range for the EBIT margin before extraordinary effects. This reflects a good service business, but also our successful capacity adjustment that increased our resilience. We are well positioned to benefit from the recovering demand, which is expected to start in the middle of 2025. Slide 23 shows that Q4 was marked by a strong service business. Sales rose significantly and the service share almost reached the 30% target. In the full year, the service margin further improved. Revenues from spare parts for paint robots grew year on year. Now, Dietmar, and over to you for the financials. Yeah, thank you, Jochen, and a warm welcome from my side as well. We will first look at the financials for the Duke Group as a whole, and after that, at the continued operations. On slide 35, I would like to highlight the improvement of the EBIT after extraordinary expenses due to lower special effects. The net income declined due to higher financial and tax expenses, including a tax provision that we created with respect to an ongoing tax audit. You can already explain that the high free cash flow is due to a timing effect with respect to early customer payments that will reverse in 2025. Let's go through the most important KPIs on the next slide. We can see the typical development of sales revenues on slide 26. Q4 was solid and the strongest quarter of the year. Year-on-year sales growth came in at the low end of our guidance due to project delays and lower demand in production automation. Looking at the geographical distribution, we see only small shifts from Germany and North America to Europe and Asia, highlighting where the current project realizations take place. Let's turn to EBIT on slide 27. Here we can see the progress we have made since the beginning of the year. Major contributors were the automotive and clean technology systems business. OMAC mitigated the margin declines from lower sales with the capacity cuts and flexible measures. Slide 28 shows the free cash flow development. Q4 was stronger than expected due to the earlier customer payments that we mentioned before. Without this timing effect, Q4 would probably have been slightly negative as expected after Q3. The payments are reflected in the change in net working capital as shown in the free cash flow bridge. This is actually the fifth year in a row that we exceeded our cash conversion target of more than 80%. Net working capital, which is shown on slide 29, declined further in Q4 due to the high early payments. but also from active inventory management with a reduction of around €150 million compared to year-end 2023. Let's turn to slide 30 and look at the net finance debt. In line with the strong free cash flow and supported by the sale of Agramco, it decreased to €396 million, including lease liabilities of €110 million. The leverage declined to 1.1 times net debt to EVDA. All in all, we are entering 2025 with a solid balance sheet. On the next page, you can see that our liquidity headroom remains very comfortable. There are only 55 million Euro of financial instruments maturing in 2025, and we already repaid 12.5 million of those in January. Our maturity profile remains very well balanced over the next years, with a maximum of €250 million per year. Cash and cash equivalents were close to €1 billion at the end of 2024. Part of this cash was used, as you can see on the next slide, in the first quarter of this year to acquire HUMAC shares as the cash settlement offer came to an end in early March after a final court ruling in December of last year. A quick summary is shown on screen. Slide 32, and I want to give you some more explanations in that regard. The court confirmed the cash settlement at 31.58 euros and a gross dividend at 1.19 euros, as set by the regional court already back in 2019. This means that compared to the original offering in 2015, there were only negligible increases to both items, and we feel very comfortable with the court's decision. Also because the risk of a higher increase has finally dissolved. The ruling also defined an end to the period where HOMAC shareholders could tender their shares to their AG. Since March 3, we are not obliged to buy any further HOMAC shares that are offered to us from the free flow shareholders. We kept a high level of cash at hand during the past years as we were expecting this ruling to come. From the beginning of the year until March 3, in total, 2.5 million HOMAC shares were tendered, resulting in a cash outflow of 97 million euros. This also includes interest. As a result, the shareholding of Dürer and Homet AG increased from 67.7% to 83.8%. Due to the end of the tender period, the corresponding SunDrive financial liability will decline by about €109 million. The lower level of free-flow shareholding also has a positive impact on financial expenses, which we estimate to decline by around €2.6 million per year. Now we come to the presentation of the results of continued operations and the new divisions. On slide 34, you can see the financials of the continued operations, excluding the environmental business that is held for sale. Compared to the group as a whole, sales are about €400 million lower, while the gross margin drops by 50 base points and the EBIT margin by 90 base points. This includes cost allocation effects. According to the International Financial Reporting Standards, we have to put costs to the continued operations which occur in conjunction with the former Clean Technology Systems Division, but which will stay with the group from an accounting point of view. For example, administration services and grant for offices, which are being used by other divisions as well, but are especially used by the CTS divisions. such expenses are completely allocated to continued operations. After a potential sale, however, we would charge the rental costs, transitional services, and will then related people at least partially or to a big extent then transfer to the CTS division or they will join the CTS division so that this effect would be at least partially reversed. Until the carve-out, there is a temporary drag on margins by about 40% when looking at the continued operations. The cost allocation in absolute terms is about 17 million euros, so causing an EBIT impact of negative of minus 17 million euros. The allocation of cost and assets also have a diluting effect on return on capital employed. The free cash flow is about 25 million euros lower, but still at a very good level. So that's actually very complex accounting topic of how the cost allocation has to be done. And I'm sure it will cause some questions that we will have to answer later. Now, let's have a look at the new divisional structure. On slide 35, we can see the new automotive division. When you add up the numbers of paint and fine assembly systems and application technology, you will come to slightly different results. This is due to consolidation effects that are now considered in the merge division. A good example for the reduction in reporting complexity is the avid margin before extraordinary effects. You can immediately say that it is in line with the mid-cycle target of at least 8% for the Duke Group as a whole. The new industrial automation division on slide 36 includes now the lithium-ion battery, which increases all the intake by about €141 million and sales by about €87 million, compared with the old industrial automation systems division. I believe some iron battery business is not yet at break even on EBIT level due to the high R&D spending. There is a margin dilution of about 100 base points. There is a lot of potential to grow this business and its profitability going forward. Slide 37 shows the woodworking division. Here we can make it short. Only the name has changed. The restaurant remains as it was before. Finally, slide 38 shows the discontinued operation, which is clean technology systems environmental. You can see the opposite effect from the cost allocations to the continued business. EBIT benefits from the cost allocation topic that I mentioned before by about 17 million euro, showing then an EBIT before extraordinary expense margin of 15%. But even when deducting these cost allocations, the EBIT margin is excellent. We see good growth potential, but the core of this business is not production automation, and that is why we put it for sale. So with this view from the financial side, I hand back to Jochen for the outlook. Thank you very much, Dietmar. Let me first comment on our positioning in the current political and macro environment on slide 14. The changes on the political side, especially in the USA, brought back the topic of tariffs. Our strategic approach to be close to customers with our operations helps us in this respect because we have a local presence in important markets such as the USA. Nevertheless, we also import products into the USA, such as our paint robots that are exclusively manufactured in Germany. For woodworking machines, we follow a differentiated approach. Machines with strong local competition in the USA are produced there. Machines where there is no local competition are imported. With our operations in the US, we are flexible to make adjustments to our import strategy if needed. China becomes more and more an exporting country also for equipment and machines. We have strong operations there, and our plan is to further strengthen our local presence, for example, by building up product engineering and design capacities to become even more competitive. Another important topic remains the fight against climate change. Our focus is to combine climate connection with savings in total cost of ownership for our customers through the leading-edge energy efficiency of our product. That's part of our claim, sustainable automation, which is used for this upcoming annual report for fiscal 2024. Another challenge, but also opportunity, is the increasing lack of skilled workforce, which results in a growing demand for automation solutions. We are very well positioned as a group, and especially in our industrial automation division, to benefit from this trend. We have the impression that political support for local investments is increasing in order to help economic growth. Subsidies to build on modernized capacities would naturally drive also our business. In summary, there are challenges, but also opportunities, and we believe that we are well positioned as a group to navigate in this environment towards profitable growth. Let me highlight once again the fundamental demand drivers on slide 41. Sustainable production is in the end not only more resource efficient, but also less costly. The same will be true for sustainable products such as EVs, wooden houses, or alternative energy generation. We support manufacturers to set up very efficient and highly automated production lines to scale up volumes. As just mentioned, there is a clear trend towards automation when it comes to reshoring production, for example, to meet the growing demand for healthcare and consumer products. On slide 42, I would like to give an update regarding the trends towards immobility. In Germany, we saw a significant slowdown in demand. Okay, we took that out. Now let's take a look at the guidance for 2025 on the next slide. First, we talked about the DIRC Group as a whole. These numbers do not include any effect from potential sale of the environmental business. With regard to our intake, we expect a relatively wide range of between 4.7 and 5.2 billion euros. The upper end corresponds to the extraordinary strong demand we have seen in 2024. The lower end takes into account the potential for the slowdown of the global economy. The midpoint is about in line with the capital market expectations. Please also remember that 2024 order intake included a very large order of roughly half a billion euros for German automotive only. A lot will also depend on the level of uncertainty regarding the future economic development and how governments act in this context. For our business, a lever could be the demand development at HOMAG, where we expect an improvement around mid of the year. For sales revenues, we want to reach at least the level of 2024 and see growth potential of up to 6%. The respective target range is between 4.7 and 5 billion euros. The guidance for EBIT margin before extraordinary effects ranges from 5.5 to 6.5%. This means that we see an upside potential of up to 100 base points and a midpoint of 6%. The extraordinary effects should decline slightly to 45 million euros in 2025. PPA effects should make up about $30 million if you expect some M&A transaction costs in the single-million-digit area. We also included some buffer for potential restructuring and optimization charges. This translates to a reported EBIT margin of 4.5 to 5.5 percent and the return on capital employed of between 13 and 18 percent. Interest expenses. are expected to remain flattish, and the tax rate should be assumed at between 30 and 35%. As a consequence, we forecast a net income of between 120 and 170 million euros. We are committed to achieving a positive free cash flow of up to 50 million euros in 2025, despite the early payments that we already received in 2024 and are now missing in 2025. we expect to spend between 3% and 5% of sales for balance. Taking into account the hallmark shares that were tendered to us, the dividend payments as well as the free cash flow guidance, we assume an increase in net debt to a range of between 500 and 550 million by the end of 2025 when looking at the current setup of the group. Our clear focus for 2024 For 2025, this is a margin improvement in the divisions industrial automation and woodworking by leveraging already implemented cost savings, synergies, and realizing potentials in your service business. The next page, we can see the outlook for innovation. Let's start with all the intake. For the automotive division, we expect a decline from the record level of 2024 that included the before-mentioned order into one of last year. Excluding this large order, we expect growth as we continue to see a solid project pipeline. For industrial automation, we selected a broader range between 800 and 950 million euros. This takes into account the delays that we have experienced since mid of last year in demand from automotive tier one customers, but includes some upside as well. For woodworking, we expect low demand momentum starting in mid 2025, but also includes the possibility of impact from global economic weakness on demand. For the environmental business that is held for sale, we see strong growth potential for order intake. Now let's turn to sales revenues. We see growth potential for automotive and industrial automation and expect stable year-on-year sales revenues for woodworking based on the order intake development over the last year. For the environmental business, we expect moderate sales growth. Last but not least, we take a look at the EBIT margins before extraordinary effects. For automotive, we target a relatively stable margin of between 7.5% and 8.5%, which is around our mid-cycle target of at least 8%. For industrial automation and woodworking, we expect an improvement of margins to between 4.5% to 5.5%. At woodworking, this is driven by the cost savings achieved in 2024, as well as a further increase of the service business. At industrial automation, the improvement should be driven by synergies, benefits from the integration process, and potentially a more favorable market environment. Environmental business is expected to repeat the very high margin of 2024. The next slide, you can see the guidance for continued operations. This includes the environmental business, but does not yet include any effects from a potential sale of this business in 2025. If a sale materializes, we will update this guidance, especially with respect to earnings after tax and net debt. The guidance for EBIT margins before and after effects are 100 base points. below the guidance for the group as well. This includes the cost allocation effects mentioned before that account for about 40 base points. On page 45, we confirm our mid-sizer targets and plan to provide an update after the potential sale of our environmental business. Let's now summarize on the next page. We achieved a solid operational performance in a challenging environment with record order intake and sales and an epic margin close to the other end of our guidance. Our free cash flow exceeded the level of 100 million euros for the fifth time in a row. We took action to improve our earnings resilience, especially with the capacity cut at home market. We are in the process of streamlining the group structure, reducing the number of divisions from five to three, and focusing on our core business of sustainable automation. By doing this, we address long-term growth trends and provide leading efficiencies and total cost of ownership savings to our customers. Thank you very much for your attention. Now we're happy to answer any questions you might have. With pleasure.