Fuchs SE

Welcome to the analyst conference call for Fuchs Petrolab SE. At our customer's request, this conference is being recorded. As a reminder, all participants will be in listen-only mode. After the presentation, there will be an opportunity for analysts of Fuchs to ask questions. If any participant has difficulty hearing the conference, please press the star key followed by zero on your telephone keypad for operator assistance. May I now hand over to Lutz Ackermann, who will take you through the presentation.

Yeah, good afternoon, ladies and gentlemen. This is Lutz Ackermann speaking. On behalf of Fuchs Petrolub, I wish you a very warm welcome to today's conference call on the nine-month figures. All the relevant documents have been uploaded at 7 a.m. this morning, and you can find them on the IR section of our homepage. With me on the call today is Dagmar Steiner, CFO of Fuchs Petrolub. And as always, Dagmar will run you through the presentation, which is then followed by a Q&A session. Having said that, I would like to hand over to Dagmar. Dagmar, please go ahead.

Thank you, Lutz. And ladies and gentlemen, a warm welcome from my side. I would like to start with our highlights of the first nine months, 2022. and we report a strong third quarter. Despite the continued strong headwinds from high raw materials and inflation of other costs, we achieved with 100 million euro a strong EBIT in the third quarter 22. For the first nine months, our group sales reached 2.5 billion and that's 19% above last year. EBIT came in at 280 million euro. That's on previous year's level. Overall, the market environment remains challenging, and there are not really indications of improvement from the markets in the short term. We face increasing inflation, bottlenecks in our supply chains, and of course, we see sharp increase in energy prices, particularly in Europe. China continues with a zero COVID strategy, and overall, the global crisis situation remains a factor of uncertainty. Nevertheless, we remain optimistic about the last month of 22 and confirm our earnings forecast and increase the sales forecast due to inflation. On the next chart, number three, you see as always our quarterly sales development. And that reflects our sales price increases, what we've managed, what we've done the last years. So if you just look at the third quarter year on year, sales are up 184 million euro or 20%. If we adjust that for currency effect, it's still up by 13%. On the next chart, looking at our EBIT development quarter by quarter, you can see that with the third quarter, with an EBIT of 100 million euro, we are quite close to our record quarter, which was the fourth quarter 2020, and even close to the earnings of the first quarter 21. And what you can see as well is that we had a strong first half last year and a little bit weaker second half year. And in the running year, you can see the impact of our sales price adjustment. There, we made a big step forward. With that, I would like to turn to chart number five, our group sales. Our group sales. are price and currency driven up, and that's up by 19%. All our regions show a mainly price-driven organic growth. Of course, China is in a difficult market environment, and as a result of the continued euro-covid strategy, we see there a noticeable business decline. During the course of the year, we increased our organic growth. So just to remember you, in the first quarter, our organic growth was 12%. In the second quarter, it was 11%. And in the third quarter, it was 19%. And, of course, we have increasing tailwind from positive currency effects. So now I would like to turn to chart number six. OUR EARNING SUMMARY. AFTER NINE MONTHS, OUR GROSS PROFIT IS UP 9% OR 63 MILLION EURO. THIS INCREASE IS COMPARED TO SALES UNDERPROPORTIONAL AS WE SEE THERE THE SHARP RISE IN RAW MATERIAL PRICES AND THAT RESULTS AS WELL IN A LOWER GROSS MARGIN. THE GROSS MARGIN IS DOWN by 3.1 percentage points to 31.4%. Looking at the other function costs, they are up by 13% or €61 million. Personal, trade, and energy, just to mention a few, go up significantly. BUT THANKS TO A VERY GOOD THIRD QUARTER, WE ACHIEVED THE EARNINGS LEVEL OF THE PREVIOUS YEAR WITH A EBIT OF 280 MILLION EURO. CAPEX IS SLIGHTLY LOWER AND THE NET OPERATING WORKING CAPITAL SIGNIFICANT HIGHER. ON THAT, I WILL COMMENT LATER. COMING NOW TO THE REGION, STARTING WITH EUROPE, MIDDLE EAST AND AFRICA. There our sales are up 18% and that's mainly price driven. The majority of companies show a double digit growth rate. Above average is South Africa, Great Britain and Sweden. We have positive currency effects out of Great Britain, South Africa and Russia. and these offset negative effects from Poland and Sweden. Looking at the earnings, our EBIT is lower, 6% year-on-year, and that's due to a decline in earnings, mainly in Germany and Southern Europe. Coming to the region, Asia-Pacific. In Asia-Pacific, our sales are up 11%, and that's mainly driven by currency effects. Of course, we have the sharp decline in China, which is the biggest supporter of the region, and they are affected by the difficult economic environment and the, I already named it, zero COVID strategy. On the other hand, we see organic growth in India, Southeast Asia, and Australia. We have positive currency effects and they increased over the course of the year. Our EBIT is 5% below previous year figures, and that's due to the lower contribution from China. On the other hand, we see earnings growth in India, Southeast Asia, and Australia. On the next chart in our region, North and South America, we have the strongest sales growth. Sales are up 40% year on year. And that's a strong organic growth. Of course, positive currency effects as well. Our organic growth in North America is overall in the region is price driven. But we see in North America as well, A REALLY PLEASING BUSINESS GROWTH. WITH THAT, YEAH, SIGNIFICANT SALES GROWTH, OUR EBIT IS UP 28%, PARTIALLY CURRENCY DRIVEN. OF COURSE, WE SEE QUITE SOME CURRENCY EFFECT AS WELL. WITH THAT, I WOULD LIKE TO COME TO CHART NUMBER 10. our net operating working capital. So if you look at the pure numbers, our net operating working capital and absolute numbers amounts to €965 million at the end of the third quarter. Compared with December 2020, we nearly doubled our net operating working capital. During that period of time, on the other hand, Raw material prices increased by roughly 70%, and our sales prices more than 40%. So these significant increases in raw material costs, which are offset by our sales price increases, that, of course, drive the increase of net operating working capital. And that explains the strong increase. On the next chart, number 11, our net liquidity bridge 22, there you can see that these massive increase in net operating working capital explains our free cash flow before acquisitions, which amounted to minus 31 million euro after nine months of the year. That's the most important figure. And if you go a little bit deeper into it on page number 12, there we compare, there we have a bridge from the deviation of our free cash flow before acquisition of the last year, the nine months 21 to the number today. As you can see, the earnings after tax are more or less unchanged previous year's levels. We have a little bit plus out of our depreciation amortization of the capex. And we have 88 million higher tied up capital, net operating working capital compared to previous year. And of course, that's something where we are working on the remaining month this year to bring that number down. So overall, page number 13, it's still a very uncertain environment, and there are high uncertainties regarding the business development. On the one hand, we have this war in Ukraine and sanctions against Russia, We see further increases in raw material prices. We have a significant cost inflation. There is an impact on potential reduction of gas supplies. And on the other hand, looking to Asia, China's zero-COVID strategy, which is still ongoing, even if there are no signs that they might open up likely again. And of course, last but not least, we have a very tight supply chain situation and ongoing difficulties with the availability of raw material. So looking a bit deeper into raw material price development on chart number 14, you'll see our graphs, as you know it from the previous slides, earnings call presentations. And as you can see, Group 1 prices are slightly softer. But anyhow, if you look at Group 3 prices, they remain firm. And they're based on healthy demand. And there is like a limited to no capacity extension foreseen. There still is a price difference between Asia and the rest of the world. And overall, we expect our basket of raw material prices there to somehow be flat or slightly increase. With that, I come to my last chart. our outlook for the full year, which reflects the uncertain environment, and we are confident regarding the remaining month of the year, and we confirm our earnings figure. We expect our EBIT unchanged to be on prior year's level, therefore on the lower end of the range of 360 to 390 million euro. On sales, we increased our expectations due to the inflation. We see there a number above 3.3 billion euro. And all the other expectations regarding books value added and free cash flow remain unchanged. And with that, the floor is yours, and I'm happy to take your question.