Fuchs SE

Dear ladies and gentlemen, welcome to the analyst conference call of Berks Petrolube SE. At our customer's request, this conference will be recorded. As a reminder, all participants will be in the listen-only mode. After the presentation, there will be an opportunity for the analyst of Berks to ask questions. If any participants have difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. Now may I hand you over to Thomas Altman, Head of Investor Information, who will lead you through this conference. Please go ahead, sir.

Thank you, T. And good afternoon to everyone. On behalf of Fuchs, I would like to welcome you to our conference call to discuss the results of the first nine months of the year 2020. On the call with me is Dagmar Steinert, our CFO. As always, Dagmar will take you through a short presentation, which is then followed by the Q&A session. You can find the quarterly statement, the fact sheet, our earnings press release, and our conference call presentation on our website at fuchs.com under the IR section. With this, I would like to hand things over to Dagmar.

Thank you, Thomas. Ladies and gentlemen, welcome to our conference call for our first nine-month results. We saw business conditions improving during the third quarter despite the crisis global effects. Let me start with chart number two. Our group sales reached 1.7 billion euro. That's 11% below last year. EBIT came in at 203 million euro. That's 17% down year on year. Our free cash flow developed positively. The free cash flow before acquisitions was up significantly year-on-year at €122 million, despite a decline in earnings. We saw a strong improvement in our financial position. Our net liquidity, adjusted for lease liabilities, amounts close to €100 million. End of June this year, it was minus €6 million. This development confirms us in our decision to continue our investment program with a sense of proportion even under the current difficult conditions. By the end of September, we spent close to 90 million in our future, 14 million euro less compared to the previous year. We are looking ahead to the remaining month with cautious optimism and have therefore also revised our forecast for the full year 2020 based on the assumption that there will not be any major lockdowns in our key regions in the last quarter, we currently anticipate a decline in earnings in the range of minus 15%. In July, we had expected a decline of minus 25%. With that, I come to chart number three. The quarterly sales development shows our recovery in the third quarter. The crisis began in China in February, continued there in March. The Western world was fully hit in April and May. The upward trend that was already emerging at the end of the second quarter continued in the past few months with growth in China and a recovery in Europe and America. In the third quarter, sales reached €620 million, up over 20% compared with the second quarter. Chart number four, our group sales are down by 11%, as already mentioned. So organic decline in sales shows improvement in the course of the year. Just to remember, organic growth in Q1 was minus 6%. In Q2, minus 23%, and in Q3, it was minus 4%. The positive contribution from acquisition was offset by negative currency effect. If you look at the regional sales growth, that's chart number five, starting with EMEA, EMEA records minus 12% decline in sales. The region improved in the third quarter. Compared with Q3 2019, sales were down minus 8%. In the second quarter 2020, sales were down minus 28%. Almost all companies are affected by declines in sales, like UK, France, Spain, Italy, and Germany are most affected. Coming to Asia Pacific, This region records a minus 5% decline in sales to €509 million. Asia-Pacific posts a very good third quarter and sales above the previous year's quarter. Compared with the second quarter 2020, sales were up 9%. The external growth is from the acquisition of Nulong. This was the manufacturer of lubricants for the automotive retail sector in Australia in April 2019. Looking at North and South America, there we see a decline in sales of minus 12%. The region improved in the third quarter. Year on year, sales were down 7%. In the second quarter, sales were down 33%. and the organic declines reduced considerably in the third quarter. In the second quarter this year, it was minus 42%. In the third quarter, it is minus 11%. The strong euro causes negative currency effects in all regions. Let us now turn to our income statement, chart number six. Operating business considerably exceeded expectations in the third quarter, especially in September. In the first nine months, gross profit is down by €57 million, or 8%. Our cost savings take effect. The other function costs are reduced by €14 million year on year, despite an increased cost base as a result of acquisitions. Adjusted for acquisitions, our savings come to almost 30 million euros. The equity income is on previous year's level with 7 million euros. Our EBIT is down by 17% after 29% in the first half 2020. Our EBIT margin for the first nine months declines to 11.7%. In the third quarter, the EBIT margin is 14.7%. Having a look at chart number seven, our quarterly EBIT development. That reflects the impact of the crisis and our strong third quarter. In Q1, EBIT is down by 6%. In Q2, by 50%. And in Q3, it's up by 2%. With that, I would like to turn to chart number eight and to have a look at the EBIT development by regions. EMEA with an EBIT of 102 million euro is down around 22% year on year. Asia Pacific is up 4% year on year with an EBIT of 70 million. North and South America with an EBIT of 29 million euro reduced earnings decline from minus 50% in the first half to minus 29% after nine months. On chart number nine, you see the quarterly EBIT development by regions. In EMEA, an upward trend is noticeable in almost all countries after a weak second quarter. Countries most affected by COVID-19 are France, Italy, Spain, and the UK. Germany is also significantly impacted. Their equity income is at previous year's level. Asia Pacific posts a very good third quarter, exceeding the previous year. The positive development is driven by a strong third quarter in China. We see declines in earnings, particularly in India and South Korea. North America, post-earning in the third quarter above previous year, although the third quarter 2019 was impacted by bad debt. Negative effect of the pandemic in South America weakened slightly at a high level. Looking at chart number 10, the free cash flow before acquisition is at 120 million euros, 30% above previous year. We have a negative impact from the decline in earnings. A positive impact results from working capital management and other cash outflows and lower capex. The other cash outflows are based on taxes. We have a strong balance sheet structure and a secure financial position. Just to remember you, net cash adjusted for lease liabilities amounts to $97 million after minus $6 million in the first half 2020. The net operating working capital chart 11 improved significantly. The relation to annualized quarterly sales is 21.5% after 28.5% in the second quarter. And we are already below last year's number. I want to skip chart number 12, our earnings summary. That is just to give you a summary which you can read by yourself. With that, I would like to come to chart number 13, our revised outlook for the running year. In view of the business performance in the first nine months and the improved prospects for the global economy, we expect a decline in earnings in the range of minus 15%, previously minus 25%. Nevertheless, due to potential disruptions from COVID-19, we remain cautious and refrain from providing a more detailed guidance. Turning to chart 14, Yesterday, we acquired Polizai, a high-performance lubricant manufacturer in the US. Polizai employs 21 people, and they generate sales of 8 million euro per annum. This acquisition is, for us, a great addition to our speciality business in North America. With this, our short presentation ends here, and now we will start the Q&A session.