Fuchs SE

Yeah, good afternoon, ladies and gentlemen. This is Lutz Ackermann speaking. On behalf of Fuchs SE, I wish you a very warm welcome to today's conference call on the half-year figures. As always, you can find all the documents at our IR section of our homepage, which we have uploaded at 7 a.m. this morning. And with me on the call today is Isabel, our CFO, and Isabel will run you through the presentation in a second. Afterwards, there will be a Q&A session where you have the opportunity to ask questions. Having said that, I would like to hand over to Isabelle. Isabelle, please go ahead.

Thank you, Louis, and a warm welcome from my side as well to what is the first ever analyst conference of the Fuchs SE. So as you can see, we successfully lost the PetroDoc July 3rd and are now Fuchs SE only. I'd like to guide you through the numbers of what we believe was a very successful first half of the year. So as you can see, all of our KPIs we always look at are up significantly. Sales as well as EBIT are up by 11%, which means we're really back to profitable growth. So looking at this 1.8 million in terms of sales, This is the best ever half year we've done in the history of cooks. Best ever first half year. Up 11%. Majorly, obviously, price driven. So the work our sales team did was amazing. Really pays off now. So the strong prices we put into place in 2022 now show their full effect. This is why sales up. EBIT is up. significantly as well. Now it's an EBIT margin of already 11 points again, growing equally fast, which means the price increases we put into place do not only cater for the higher raw material costs, but for the general inflation we will see later as well. I think we are most proud to announce that the free cash flow in the first half of the year was even beyond our expectations. So we came out at $164 million before acquisition, which is due to the strict working capital management we put into place end of last year. So what we saw in contrast to the years before is that we didn't have quite yet any working capital build up towards the half year. Usually this looks very different. And this is why our cash conversion is way beyond one in the first half of the year. Due to those good numbers, I think in contrast to a lot of other chemical companies, especially in the German-speaking area, we are proud to confirm our outlook for this year. The sales of 3.6 billion, EBIT 390 million FVA above prior year. And due to the good results we saw from our working capital management and the strong cash flow, we would like to increase our guidance for the free cash flow from formerly 250 to now 300 million for the entire year. I will guide you through the numbers in a little bit more detail and then reiterate our guidance at the end of my presentation. What we saw in the second quarter was sales of 386 million, way beyond what we achieved in prior year with 832 million. In total for the half year, we were up by 11%. Looks like quarter two was a little slower compared to quarter one, but this is not really driven by the volumes, but merely by prices of the price variation clauses starting to come down. As you will see later, Prices especially raw material prices now started to come down this in some of the regions already and this is obviously the effect we will see from this would say 25% of our sales roughly covered by price variation closer. Looking at the Abbott development we are proud that we were more or less able to repeat a very successful quarter one. So then what we need to take into account that there's one special effect in quarter two due to the closure, due to efficiency reasons and the move of some production at our location in Bremen. All of this is catered for in Q2 already, which is a mid single digit amount. So compared to this, quarter two would look very similar to what we saw in quarter one. so yet another quarter above 100 million. I think this is why we are very, very convinced that we will be able to meet our guidance and expect a second half of the year at a similar rate what we saw in the first half of the year. Looking at where the growth came from, I think it was a very good achievement. All of the growth we saw in terms of top line and then obviously EBIT as well came from organic growth. So no acquisitions to take into account here, but all of this managed by ourselves. But what we start to see now is obviously, and it's already announced earlier this year, the first impact from the stronger euro. You might remember last year in quarter two, but then especially quarter three, We had a very weak euro, where partially we even had parity to the US dollar, a very strong RMB. And this we expect to reverse during this year. And those are the first impacts, those 52 million we lost in the first half of the year already. So having said this, in summary, I think sales are growing at the same rate. Improvement in the margins again. Our gross profit up by 10%. So we compensated for higher raw material prices in the general cost inflation list of that as well. Because what you can see in other functional costs, they are obviously up compared to prior year as well due to the higher personal costs. So most of that really salary increases of existing employees. We are still very cautious in terms of adding additional headcount, which you can see in our headcount numbers. But of course, we need to make sure to absorb the extraordinary increase inflation rates we saw last year. We now have the full year impact of higher freight and energy costs as well. Although we already see that a slight relief might come here and continue hopefully in the second half of the year. For our CAPEX, we still stand by our former guidance of 80 million, so on the level of our depreciation every year. But general pattern we see is that we have slightly slower spending in the first half of the year, but we still expect to come up at 80 million at the end of the year, although we spent a little more in the first half of the year than we did last year. And then I think Definitely, the biggest change compared to last year is the increase in net working capital. If you remember, same time last year when we talked, we had to build up almost 150 million more in working capital due to the increases in raw material pricing, especially after Russia invaded Ukraine. This year, we were able to keep our net working capital more or less on the same level we had at the end of the year. And that's despite the fact that our sales grew by 11%. So you can imagine that our receivables are now, due to the higher prices we have in the market, significantly higher than what we had at year end. So we did a very good job in managing our inventories, managing our payables, to make sure that this stays at a constant level. And this is why we are proud to show you a free cash flow before acquisitions of 164 for the first half of the year. Having said this, I think it's worthwhile to look a little bit into the different regions to give you a flavor of what is happening and where our growth is coming from. EMEA has shown a very strong performance, a surprisingly strong performance in the first half of the year. All countries we are in, we saw double digital growth rates in our sales. So this does not come from Germany only, but from countries such as Great Britain, Sweden, Poland, France as well. So across the board, we really see a very favorable development in terms of sales, as well as obviously the effects of the price increases we put into place last year. a very strong increase in EBIT for our own entities, but for our equity companies as well. We have some small currency effects. This is majorly due to the fact that we have countries like Great Britain and Poland in here. But I think the bigger effect we will see later on from the two other regions. But I think in total, major contributor to our growth was the EMEA region again. And we can see what a great job our salespeople did last year with really making sure that the price increases our path through to our customers. Looking at the Asia-Pacific region, this is more of a mixed picture. So we see increase in sales compared to last year, although not as high as we would have expected it in the beginning, but at the beginning of the year. But I think this is a very strong signal that the rest of the group is able to compensate for the moderate economic recovery, how we would like to phrase it, what we see in China. And even in the APAC region itself, all other countries we have, maybe Australia, India, the Southeast Asia region, or East Asia with Korea and Japan, performed convincingly well and had very good results compared to last year. But what we, of course, have to take into account looking at the Asia-Pacific region is the effect China has on that region, being by far the largest country there for the focus group. And what we see is a good contribution, yet not as strong as we would have expected at the beginning of the year. Why is that? Well, I mean, if you look at how the economy in China is developing, Growth rates are not yet or not there where we used to see them before COVID. So economy is still relatively slow. There's a lot of uncertainty in the market. The demand from the industry is not as strong as it used to be before COVID. And we only see slow recovery, especially due to the fact that a lot of export business in China is not there yet. And it's only picking up slowly, which means especially for our business we already have. So the base business, the volumes are not coming back as fast as we would have anticipated. Although our team in China was very successful in gaining new accounts, getting access to new customers in the market. So we were able to compensate for most of the volume growth that did not come from the existing accounts yet. So I think this is very good news because once the economy starts to pick up again, we have the old-based business with Chinese as well as Western customers, and we already have the new business in our books with the customers we now onboarded to make sure that we can at least meet our expectations. And we expect that recovery to continue at a similar speed throughout the second half of the year. And last but not least, looking at our Americas business, we saw really nice growth rates compared to last year. So very good growth and sales. But slight effect from currency already, but then growth and EBIT compared to last year as well. So I think what is extremely important to mention is we saw good growth rates in the U.S. despite the fact that they are at the brink of a recession right now. But our team still has very good access to the customers. Volumes are still at a good level. And we see Uda Intech coming back for what is the third quarter as well. We saw really nice developments in Brazil and countries such as Mexico as well. So I think in general, a very good success story for the region and well above what we saw in prior year. Coming back to our net liquidity again, I think, again, worth mentioning free cash flow above earnings after tax. So cash conversion well above 1.1 for the first half of the year, especially due to the fact that we did not have any build-up in net working capital. To put that into perspective, what does that mean? It means that we out-earned the dividend payment we did for last year in the first half year alone. We would have expected the net liquidity to be at a much lower level as of June because of the dividend the share buyback. but we already earned all of those in the first half of the year, which I think is a very good success story. And we expect that trend to continue throughout the second half of the year. Major contributor to this development was the networking capital, which you can see on the next slide. So you see a nice trend in inventories. They are gradually going down compared to quarter four 2022. We are now at 24% working capital in terms of sales, and we'll further look into to lower that ratio. But as you can see, compared to quarter one, inventories are down again, and even receivables net of liabilities are down, despite the fact that the revenues are up significantly. So I think this is a very good success story. And we will put all our efforts towards year end to make sure that this number is lower than again. So to reiterate the guidance, we are very confident that we do not have to lower our guidance compared to a lot of other chemical companies. But we are confident that we can at least repeat the first half of the year and the second half. Although the current environment, as I said, in the US but in Asia as well, it's obviously a little difficult to navigate. We saw varying demands. A lot of other companies issue profit warnings. This is why we decided to stay on the cautious side to make sure to cater for all of those risks. Although, of course, guidance around 390 does not mean that we will not do all that is in our power. to exceed this number, and that a number in the ballpark of 400 could be achievable. For the forecast and for the free cash flow, we are already very certain, because this is within our own power, that we can exceed the 250. This is why we decided to take off the guidance we put for the free cash flow to 300 million, because we believe that we can continue on the successful path of getting back part of what we invested into our working capital over the last two years. Last but not least, as always, I would like to give you a slight view on how the pricing developed, which somehow ties to the comments I made earlier in terms of the development for our price variation clauses. So we saw the Group 1 and Group 2, which behaves very similar to the three graphs you see here. coming down a little bit again in Q2, although the medium blue line you see in EMEA, we already saw a slight bounce back. So what we see now is more, I would say, of the normal picture we had before that, where usually the prices for Group 1 and Group 2, they're relatively close together across the region. So what we saw, what was a little unexpected in the second quarter of the year was 0.1, the uptake or the slight uptake in Germany or in Europe in general again, and the relatively high pricing level we see in China for almost all of the raw materials. What we are happy to observe is that finally the prices for Group 3 oils are coming down a little bit. As you might remember, we had what we called structural tightness in the market, namely the output of Neste not being where it used to be after Chevron took over. So we now see that this is improving, and we have two players in the market right now who can deliver, not at full volumes, but albeit we do not have to rely on SK only anymore. But Chevron is back in the game, and this is why prices start to come down slightly. The rest of the pricing, additive packages and raw materials, other raw materials, still above long-term average and only coming down slightly. And just to remind you, those costs cater for roughly 60% of the materials we buy to manufacture our products. And this, I think, is our expectation. towards Q3 and beyond that the pressure on the prices the raw material prices is anticipated to remain and we will see a slight decrease throughout the end of the year but no let's say full of prices we might have expected beginning of the year due to the fact that prices were very inflated when we started into 2023 as And on average, our raw material basket grew, just to remind you, from mid-2021 to end of 2022, roughly 70%. And we now see that we are slowly getting back to the level where we were beginning of 2022, which was inflated already. Having said this, thanks for listening to the call. And I would now like to open the floor for any questions from your side.

Thank you. As a reminder to ask a question you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 and 1 again. We will take our first question. And the question comes from the line of Markus Meyer from Bader Javier. Please go ahead. Your line is open.