Durr Ag Spon Adr

Good afternoon and welcome to the DER conference call for the first quarter of 2025. I will now hand over to Andreas Schaller, Head of Investor Relations of DER-AG.

Thank you very much, ladies and gentlemen. Good afternoon and good morning to those of you in the U.S. Welcome, everybody, to our Q1 earnings conference call. With me on the call today are our CEO, Jochen Weihrauch, and our CFO, Dietmar Heinrich. They will present the Q1 results as well as the outlook and will be happy to answer your questions afterwards. As always, our earnings presentation is available on our investor relations web pages, 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, for the short introduction and a warm welcome also from my side to all participants on this call. On the following slides, we will mainly focus on the earnings of the continued operations in accordance with our last annual report. The environmental technology business is held for sale and the respective sales process is ongoing. We will comment on the main KPIs also for the DIRC group as a whole on one slide and refer you to the appendix for further details. As always, I will first go through the highlights and divisions, and then my colleague Dietmar will talk about the financials. At the end, I will reflect on the current situation and outlook. Let's take a look at the highlights of Q1 on slide five. Overall, we had a solid start into 2025. Our intake was robust and in line with our expectations at 1.1 billion euros. The prior year Q1 was boosted by a large partnership order in Germany for automotive. Without this special project, automotive order intake would have grown year on year. Industrial automation and woodworking orders improved as well. Order backlog remained at a high level of 4.2 billion euros. Sales revenues were stable at prior year's Q1 level of 1 billion. The book-to-bill ratio stands at 1.07. At 3.9%, the EBIT margin before extraordinary effects was on par with the level of Q1 2024. It includes about 4 million euros of costs that belong to the environmental business, but are allocated to continued operations due to IFRS regulations. Net income improved by 40% to 17 million euros due to lower extraordinary effects and a better interest result. Free cash flow was slightly positive in Q1. This is a great achievement of our team in continuously managing working capital as some customer payments expected for Q1 2025 were brought forward to Q4 2024. Based on the results of Q1, we are confirming our outlook for 2025 from today's perspective. On slide six, we see the key financial indicators for Q1. The 21% decline in order intake was solely due to a strong base effect stemming from the already mentioned partnership project with a size of almost half a billion euros into one last year. Adjusted for this single event, order intake showed a positive development. Sales revenues were stable but included negative effect from the deconsolidation of Agramco in the order of 15 million euros. The increase in automotive sales compensated the deconsolidation effect, as well as the lower operational sales revenues in industrial automation and woodworking. The EBIT margin before extraordinary effects was close to prior year's level. Net income improved from 12 to 17 million euros. The slightly positive free cash flow is a good start and in line with our full year guidance. On slide seven, we can see the main KPIs for the group as a whole. The dynamics are the same as for the continued operations, and therefore, I will go ahead and look at the order intake on the next slide. The order intake of the continued operations improved quarter on quarter, and the book-to-bill ratio stood at 1.07. We saw a solid rebound of orders for production automation systems, and woodworking had a good start into the year. Automotive order intake was solid and the project pipeline is stable. On slide nine, you see the geographical distribution of order intake. The effect of the large automotive order in Germany on last year's Q1 is clearly visible. The order intake in all other regions improved year on year. In the Americas, we won a large automotive order and secured an attractive project for production automation. We received several double-digit million euro orders in China and another big automotive order in Saudi Arabia. Once again, our global diversification and being close to the customer is a big asset. Let's have a look at our M&A activities. The sales process for the environmental technology business is proceeding, and we will keep you informed about important developments. On slide 10, we would like to remind you of the increase of our shareholding in HOMAG to almost 84% as a result of the end of the cash settlement offer in early March. We had a cash outflow of 97 million euros for the acquisition of the shares that were tendered to us. This was already considered in our guidance for net financial debt in 2025, and therefore, there is no change to what we presented before. As a result of the increased shareholding, we saved financing expenses for dividends and interest payments of about 2.6 million euros per year. On top, sundry financial liabilities declined by about 109 million euros. Now let's have a look at the divisional development. We start with automotive on slide 12. With more than 500 million euros, order intake was robust and above sales revenues in Q1. As already mentioned, the prior year Q1 included the very large order in Germany. The project pipeline remains solid, but customers currently take more time to make decisions due to the uncertainties around tariffs. Since revenues grew by more than 8%, driven by higher equipment sales. Debit margin before extraordinary effects was at the same high level as in the prior years Q1. This is in line with our expectations and guidance and a great achievement since the last year's Q1 included a very strong service business. The service share was lower this year, but the margin remained at a high level. In addition, we saw good margins on our equipment sales. Networking capital management continued to be very disciplined, and we achieved a high return on capital employed of more than 40%. All in all, we're very pleased with the solid start of our automotive division in 2025. Let's turn to industrial automation on slide 13. Water intake improved by almost 10% and was mainly driven by rebound of orders for production automation systems. We won several double-digit million orders, double-digit million orders in China and Europe. On the other side, orders for battery production equipment were weak in Q1 due to investment delays and competition. The balancing business performed well, driven by demand, especially from the aerospace sector. More than half of the decline in sales revenues came from the deconsolidation of Arcomco, which we sold in July last year. The rest was a consequence of the weaker order intake last year in connection with the slowdown of the EV transformation at Tier 1 customers. The decline in EBIT margin was mainly due to the higher R&D expenses for the lithium-ion battery business. The solid orders for production automation in Q1 are a good sign, and we continue to focus on winning projects and bringing up the margin at the same time. Next is our woodworking division on slide 14. Order intake improved year on year to a level above the run rate that we assume for our guidance. Q1 typically sees some more order activity as we are regularly increasing prices in February. The single machine business improved slightly. We're still cautious and believe it is too early to call it a market recovery. We expect a clearer picture after the Ligna trade fair in May. Sales revenues declined somewhat due to the low order intake level in 2024. Service sales increased, however. The EBIT margin before Extraordinaries improved by almost 100 base points, driven by the cost savings and the higher service share. On slide 15, we see the development of our environmental technology business, which is held for sale. And I would like to keep the commentary short. Order intake continued to be solid in North America, but we have seen some declines in Europe due to the timing effect of projects. The order pipeline remains well-filled. Sales revenues growth is in line with expectations, and so is the margin development. The margin level remains high even when adjusting for the cost allocations to the continued operations. This is a result of the right project selection and a very strong project execution. Now let's move on to the service business on slide 16. In Q1, service sales reached a level close to the very strong level of the prior year. Due to the growth of the equipment business, the service share declined slightly. Margins remained stable year on year. Growth of the service business of the woodworking division was very solid, and we are on the right track to realize the related margin potentials. Now, Dietmar, hand over to you for the financials.

Thank you, Jochen, and welcome to everybody also from my side. I start with slide 18 and the overview of the financials for the continued operations. The table for the group as a whole can be found in the appendix. We can actually see that cross-profit and the related margin improved. However, this was offset by higher overhead costs. Reported EBIT rose due to lower extraordinary effects, especially from PPA. Together with lower interest expenses, this led to a solid improvement in net income by more than 40% year on year. On slide 19, we can see the revenue development quarter on quarter and year on year. The decline compared to Q4 2024 is due to our typical seasonality. The year starts on a lower level, but sales generation improves towards the end, driven by project execution and a stronger service business during summer and Christmas break. Year-on-year sales were constant. Like for like, that means considering the 14.5 million euro effect from the disposal of Agramco, sales revenues would have grown slightly. Q1 was still impacted by a lower project execution level in production automation due to subdued orders in 2024. Looking at the regional distribution, the higher sales share of the region Asia, Africa, and Australia is due to the execution of a project in Saudi Arabia. Let's move now to EBIT on slide 20. Here we can see a similar picture as with sales. That means the stable development of absolute EBIT and the margin year on year and the typical seasonal decline quarter on quarter. Looking at absolute margin level, we should keep in mind that the service share was lower this year And that cost allocation effect of about €4 million is included in accordance with IFRS due to the health for sale situation of the environmental technology business. The improvement of the reported EBIT is due to the lower extraordinary effects as already mentioned. The slightly positive free cash flow in Q1 shown on slide 21 is a solid achievement, especially when taking into consideration that a large sum of customer payments was brought forward into Q4 of last year. We compensated for this by a very disciplined network in capital management. At the same time, we were a bit more cautious with CapEx spending in Q1. The higher interest payments are related to the cash settlement offer for Hallmark shares that ended beginning of March. The latest developments of net working capital can be seen on slide 22. Net working capital declined slightly and reached €401 million at the end of Q1 2025. The contract liabilities declined, but we could compensate this by reducing inventories, contract assets, and receivables as well. Days working capital remained below the target range of between 40 and 50 days. On slide 23, we can see the impact of the HOMAC share purchase on our net financial debt, which increased to €482 million at the end of Q1 2025, but is still below the value of Q1 of last year. Leasing liabilities of €101 million are included in the net financial debt. Leverage increased somewhat to 1.6 times compared with the end of 2024, which is in line with our target of less than two times. We regard our balance sheet as solid and risk are reduced due to the end of the HOMA cash settlement offer. When we look to slide 24, we see that we are well financed. which can be seen from our maturity profile and the liquidity situation. The liquidity headroom remains high, even though we reduced it by the early repayment of maturities in 2024 and the purchase of the Hallmark shares in Q1. We had reserved a larger liquidity headroom as we were expecting the cash settlement offer to come to an end at a certain point in time. With available funds of 1.6 billion euro, we are comfortably positioned to repay the upcoming maturities. With this view from the financial side, I hand back to Jochen for the outlook.

Thank you, Dietmar. A key topic of discussion during the last weeks were risks and opportunities related to tariffs. We included slide 26 in the presentation to summarize our view. There are three key takeaways. First, we do not expect significant impacts on ongoing projects due to several reasons. We are well positioned with local production in USA. More than half of the revenues in US are generated by our local operations. Even though the remaining revenue share is based on imports with a majority coming from Europe, we also do not expect a large effect from tariffs. The reason is that most of the products sold in the USA by competitors are being imported too, as the local machinery industry in the USA is not particularly strong. Let me give you one example. We produce CNC machines for woodworking in the US because there's also local competition. Edge bending machines, however, are imported from Europe as there is no real competitors in the U.S. Global competitors are mainly from Europe or from China. In addition, we included contractual safeguards in our contracts for projects, for example, stating that tariffs are taken over by the customer. Second, There are short-term risks regarding order intake as some customers adopt a wait-and-see approach until the new tariff system will be established. Investment decisions might be put on hold. And third, medium to long-term, there are opportunities that an increasing localization of our customers' production capacities will lead to additional capex spending. This would translate into stronger growth rates going forward. That's our take for the time being. I think we all agree that it would be good to have clarity regarding the tariff environment rather sooner than later. Apart from the current situation and the focus on the tariff discussion, our fundamental growth drivers remain valid as shown on slide 27. We have shown this slide already many times and I will not go into further details today. Let's look at our guidance for the continued operations for 2025 on slide 28. Our guidance reflects the macroeconomic uncertainties that already existed as of early March. Since then, Tariffs have been announced and suspended again, and the first trade agreements between the US and other countries have been concluded. Despite this increased level of uncertainty, we confirm our targets for 2025 from today's perspective, based on our local setup and the solid performance in Q1. Our guidance does not take into account any significant deterioration of the economic situation. On slide 29, you can see the breakdown of the guidance by divisions. There has been no change compared to the guidance from March 6. Same is true for the guidance for the DUR Group as a whole on slide 30. Our unchanged midterm profitable growth targets are shown on slide 31. We believe we can reach more than 6 billion euros of revenues by 2030 with or without the environmental business based on the strong fundamental growth drivers. Mid-cycle, we target an EBIT margin before extraordinary effects of at least 8% and a return on capital employed of at least 25%. Now let's summarize on slide 33. Overall, we had a solid start into 2025. Our order intake was robust with growth in many regions. Sales revenues and EBIT margins reached the decent levels of the prior year Q1. Our net income improved by 41%. We achieved a positive free cash flow and our balance sheet remains very solid. We are on track to reach our targets for 2025. However, there remain uncertainties regarding the impact of the current trade and tariff discussions on the overall economic environment. Thank you very much for your attention. Now, we're happy to answer any questions you might have.

Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press 9 and star on your telephone keypad. In case you wish to withdraw your question, please press 3 and star. Please press 9 and star to register for a question. And first up is Holger Schmidt from DeceptBank. Over to you.

Good afternoon, everyone. Yeah, I have a couple of questions, and I would like to take them one by one. The first is on the industrial automation business. You mentioned that too low capacity utilization burdened the operating result. How do you see the development of the utilization evolve throughout the year? And what kind of financial impact did it expose in the first quarter?

Okay. Thank you, Holger, for the question. So what we see is, as we've described during the speech, is temporary underutilization in the business that we're taking into account. But from today's perspective, we will stick with the guidance that we've given for the division, and we're constantly working on improving the margins at production automation systems. also continuously increasing efficiency. We have further reduced some capacity, reallocated some of the processes, and as I said, we saw recovery on the order intake, which will help further down the road in the year to use, to avoid underutilization and accomplish the guidance from today's perspective that we've given in March.

Okay, another element of the burden on the operating result was higher R&D expenses for the battery business. And would you be able to quantify these higher expenses? And also, how do you currently see the prospects and the demand pipeline for the battery equipment?

Yeah. So I would guess the comparison of R&D expenses versus last year in our LIB business, which is lithium ion battery business unit, would be in the magnitude of 2 to 3 million roughly. We've received a large order for that business end of last year in a high double-digit amount, which is good. That gives loading for the year. We will have to see how the business continues. This is a business that's very much driven by larger orders that come or don't come, and we will have to see how the market develops. There is a pipeline, and we will have to see what projects will finally be awarded and obviously what projects we win.

Okay. Okay, and the last question is on the automotive business. I think you mentioned that some customers are pushing ahead with their projects more slowly than initially planned. If this development or customer behavior continues throughout the year, would it pose a risk for your divisional or group guidance?

At this point, from today's perspective and the pipeline that we see, which this year consists more of a number of smaller but enough projects in the pipeline, we don't see that. This is why we're sticking with the guidance. And I have no reason at this moment to believe that we cannot achieve the guidance also for order intake. Obviously, if the situation would deteriorate completely and customers would stop ordering, that would be completely stop ordering, that would be different picture. But as you can see, even though there's been the uncertainty already in the first quarter, we have booked almost in line with the guidance for the year. So if you look at the 500 plus million that we booked for the year, that is pretty well in line with the guidance for the business, and this is what we assume further down the road.

Okay, understood. Thank you very much.

Thank you, Holger.

And next up is Adrian Peele from Otto BHF.

Thank you, everybody, for taking my question, actually. First of all, on the sale proceed of the environmental business. Could you please elaborate on if you feel you are on track, did terrorists pose any kind of shift also to the project overall and the uncertainty associated with that? And the second question is a little bit on your personnel and headcount development actually, which was going down by kind of 4% in Q1 versus last year. And that was coming basically from every division except for the holding. So two questions. First of all, could you help us a little bit understand how the headcount should develop throughout the rest of the year? Also, with relation to the buildup on the holding side, or let's say on the... you know, general function side. And also one question to the woodworking business. Obviously, the book-to-bill ratio was quite solid in Q1, yet you are refraining a little bit to call this the start of a recovery here and referring to the fair. Maybe you could nevertheless elaborate a little bit on the discussions that you have with your clients, actually, and what they see going forward, given that probably some digestion must have happened. And on the fare that you mentioned, how much has it been a driver for new business in the past? Thank you.

Thank you, Adrian. I tried to cover... All the questions, if I miss out on answering one of those, please remind me. First of all, on the sale of the environmental business, we're on track. Let's see, you know, I've been in M&A for many years, so something's done when it's done. But from today's perspective, we are positive about the process. On the headcount, well observed. First of all, the reduction of the 4%, mainly driven by the successfully completed reduction of HOMAG. You know, we've announced 600 people in terms of capacity. That's been running well. On the holdings, also well observed. We've had, you know, we've been introducing many programs over the course of the last one to two years, which had reached the peak. We've introduced a completely new CRM system. We have introduced a completely new HR system. We are about to introduce a new SRM system. And last but not least, also a new ERP system. And capacities have peaked out. and you can expect those capacities to reduce as we go forward to bring the holding in line, if you will, with the sizing of the divisions. So on HOMAC, we typically have relatively speaking, a pretty good first quarter because we typically increase catalog prices in the middle of the first quarter. So that typically drives some orders just before the increases. And with all the uncertainty, we're just cautious to extrapolate the relatively good first quarter And we look forward to the trade show Ligna. Ligna is not necessarily a show where people would just go there and order like hell. But it typically gives a pretty good impression about the sentiment in the market. And this is what we are looking forward to. Honestly, we're still a bit cautious because of all the uncertainties. And it's still difficult to guess. what it means, because the business of HOMAG, if you will, is maybe the business that we have that is the closest to consumers and consumer reaction. This is why we're still carefully watching before becoming too optimistic. That's probably all I can say at this point.

Got it. And on the sale of the environmental business, when I stood if I understood this correctly, also what we discussed in previous conferences was like that you expect the closing at some point in time in Q2. Now that's still six weeks to go. So I take, when you say everything's on track, that we should expect something in that time horizon. Is that fair to assume?

At this point, I wouldn't disagree, but we're talking about signing rather than closing. Closing would be expected. Ideally later in the year.

Sure. No, no, you're right. I meant signing as well. Yeah, that makes sense. All right. Thanks for that. Thank you.

At the moment, there are no further questions. So if you have any additional questions, please press 9 and star now. 9 and star for any additional questions, please. And next up is Nikita Lal from Deutsche Bank. Over to you.

Hi, and thank you for taking my questions. I would have actually just one remaining one on your current trading. So what are you seeing for Q2 currently? I would assume automotive is ongoing solid like we saw it in Q1. How about homework and industrial? Thank you.

Maybe I take this question actually, Nikita. I think you can indicate it already regarding the woodworking side. We had a good development regarding order intake in the first quarter. Now let's see what's coming out from the Ligna fair that is taking place basically within the next two weeks or towards the end of May so that we see more market settlement coming from that side. On the industrial automation side, we had a good first quarter as well. Overall, derived from the uncertainty after the announcement of the US government regarding the customs tariffs, There is hesitation of our customers to award projects right now. So we will see basically a weaker development. But as Jochen already mentioned, when this matter is going to be solved and we can see the first signs already with US-UK agreement, regarding a China-US agreement, then there will be more activity. And I think the customers will again have the direction to actually make their investment decisions.

Perfect. Thank you very much.

Thank you. And next up is Peter Roteneiser from Bargain Bank. The floor is yours.

Yes, hello, gentlemen. Another question on the industrial automation system. So you experienced some improvement in order intake in the first quarter. Nevertheless, considering your expectations for the full year, I think there's still some further improvement necessary. Can you... explain how the different industries are developing in terms of demand. So do you see already some improvement with regard to e-mobility? How is medical technology developing and so on?

Thanks for asking, Peter. If we go through one by one, LIB relatively silent in the first quarter. As I mentioned, big order end of last year, high double-digit numbers, so that gives us enough backlog. But due to the discussions, and we've been referring to this now a few times, uncertainty, especially in e-mobility, shift maybe more towards the combustion engine again or combination of hybrids, etc., relatively weak starting order intake shank. So, our balancing equipment on track according to plan, developing nicely. Benz, which is the tooling, still weak because this business is on the one hand directly connected to woodworking, so to HOMAG, which still is relatively weak. And also through the machining industry, machine tool makers, which is also still a challenging market, so still relatively weak. So it's good that we've reduced capacities and can basically avoid under-absorption there. Then on industrial automation, a mix. It's still relatively weak on the immobility side, but continuing to be very solid on the MedTech side and some other tier one business, which all in all has given us a solid improvement over last year in intake, and then step by step this will also transfer into two sets.

And regarding your project talks with customers, do you see here some short-term improvement, or is your hope still then some improvement in the second half of the year, which most of the companies hope for?

I would say there is still, when you talk about e-mobility, yes, there is uncertainty. as some of the programs have to gain more clarity. Our customers in mobility are both T1s and OEMs, and especially the T1s, you can read that every day. They are reorganizing their supply chains and own capacities, and I would not expect that to go away very soon. Okay, thank you. Dieter, we can barely hear you.

Yeah, thank you.

Now, okay, thank you.

At the moment, we do not have any further questions. So, for any additional questions, please press 9 and the start key. Thank you. And we have more questions in the line. And next up is Christian Kors from Warburg Research.

Yes, hello. Good afternoon, and thanks for having me. I have two questions, actually. First of all, do you have any more non-core assets which you could actually sell? I'm thinking about your technology park in Darmstadt and Yeah, we are reading day by day that the real estate market is recovering. So any thoughts on that from your side? And also then coming back to the industrial automation business, I remember, I think it was half a year or a year ago, you said that you have various contracts where you have to do a lot of engineering work, but then if there's a follow-up contract, that this engineering work must not be done again and that this would be a very profitable follow-up business. So is there anything in the pipeline in that regard where your engineering work and your upfront expenses pay off?

Thank you, Christian, for your questions. On the non-core, let me look what is available. Nothing to talk about at this moment now. On the industrial automation business and engineering orders, yes. We have, to just name one example, we've been reporting on the MedTech business, and we've been also reporting that we involved, for example, on this weight reduction pen, the, you know, supplying equipment that assembles that pen. There we have multiple orders where we're executing currently the first one, and the following ones will have definitely less engineering expenses or effort to be done. I'm not saying it's going to be zero, but it's going to be, a fraction from the initial efforts. Yes, this is happening as we speak. Okay. Thank you. Thank you.

And the next question comes from a little bit from Portugal. Over to you.

If I got your question right, it was the question about whether

the automation business, industrial automation business would also suit defense, right? Yes. Okay. We are currently investigating this. There have been also in industrial automation a few, but very few orders in the past, quite a while ago. And we are currently investigating also for the whole group what potentials we have to give defense a more structured approach. Why am I saying more structured? We have had some defense business, and we have as we speak. For example, on the painting side, we are also painting aircraft, or our equipment does, and there's been also defense applications there. As well as, for example, on our balancing machines, nine out of 10 aircraft engines today are balanced on our equipment. And those aircraft engines are also often used for, let we call them higher speed airplanes. And also on the industrial automation side, we're now investigating the automation because there is some product, you know, that will be, used in much higher numbers in the future, and this definitely will need automation. So we see potential there. We're structuring our strategy here, but we're definitely moving forward in that direction.

Thank you very much.

Thank you.

So once again, any additional questions, please press the nine and star key. Thank you. There are no further questions.

Okay. Thank you very much, Beatrice. And thank you very much to all analysts and investors. attending this call. In case of any further questions, please do not hesitate to contact the IR department. My colleagues and me will be happy to answer your questions. That being said, we look forward to staying in contact with you, and yes, stay safe, and goodbye to you all.

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