Fuchs SE

good afternoon ladies and gentlemen on behalf of focus here i wish you a very warm welcome to today's conference call on the half year figures with me on the call today is isabel adert our cfo and as always isabel will run you through the presentation in a second and then we will have the q a session afterwards all the documents you can find on the ir section of our home page since 7 a.m this morning and having said this i would like I'd like to hand over to Isabel. Isabel, please go ahead.

Thank you, Lutz, and a warm welcome from my side as well. We are delighted to guide you through what we believe are good numbers for the first half year of the focus group. So looking at the highlights of what we present today, we have some very good KPIs, which are perfectly in line with what we predicted in the beginning of the year. despite some adverse developments you can read in the newspapers or see on TV, and obviously what is currently happening all over the world. But we are delighted that we can confirm the outlook for this year. Some highlights of what we saw in the last three months and the first six months of the year, sales are slightly down, but this is only driven by price adjustments due to lower raw material prices. But as you can see, of course, more moderate than what our input cost did. This is why despite lower sales, we were able to up our EBIT by 18 million euros or 9% year over year compared to where we were at the same time last year. This, of course, helps us as well to contribute to our midterm EBIT margin target. We are now 12.4%. compared to 11% at the same time last year. And this is a very good development because looking at top line, we can see we are back to volume growth. Sales prices are down more moderately than our input cost. And we have some adverse currency effects due to the relatively stronger Euros. A Euro especially compared to US dollar, Chinese RMB, but a couple of other currencies as well. But at the same time, we were able to really hold on to the good margins and manage our costs very diligently. So we are satisfied with how the results turned out. All of this led to an earnings per share, which is significantly higher year over year. And we're happy to report that we are very close to completing the share buyback. So just to remind you, we announced that we want to buy back 4 million of each share class. which we've done as of last week for the preference shares. And we are about to conclude the ordinary shares in the next couple of days. Free cash flow is lower than last year, but according to our expectations. Major contributor to the difference we see is the net working capital buildup. So what we see now is that we are back to a more normal pattern in terms of development. If you remember last year, we concluded 2022 with a net working capital over sales of 25%. So we put a lot of effort into reducing safety stock and really getting everything to a normal level. This year, we see the normal pattern we've had in pre-COVID years, too, of a build-up in the first half of the year and then a subsequent ramp down in the second half of the year. One highlight to mention before we go into the numbers in a little more detail is the closing of the LoopCon acquisition. We already announced that in our last call that we signed the deal, and now we're happy to report that as of July 26, we closed the deal, and we can now full throttle include what we believe is a very nice addition to the portfolio to the rest of the group, as well as include the LoopCon numbers, obviously, into our group numbers as of August 1st. And now looking into the numbers in a little bit more detail, sales have said we are down year over year, but flat over last year. So, what does that mean? In total, we already said prices are down a little bit, majorly driven by our price variation clauses. Plus, we have a negative impact from foreign currency, which would in the conclusion mean, of course, would be negative impact overall. We are flat because we had more volume in Q2 this year than we had in Q2 last year. And this is what we already discussed and what we promised you in Q1. We had a slight deviation end of Q1 due to the Easter break being early, but we caught up even a little bit more than that during Q2. In terms of EBIT development, compared to last quarter two of 2023, we are up 14%. And I think this is a very good achievement with quite different contributions. But I think for me, what is the highlight of this number and why is it so high? There's contribution from all regions. Last year, I think it was more the patterns. We always said EMEA is developing very strongly and the rest of the world is rather flattered. And this has turned this year. So EMEA, yet again, had a very strong contribution, but the same is true for China, for Australia, for India, for the U.S., for Mexico, and a lot of other countries. And this is, once again, stressing the strength of the group and confirms that the decentralized setup we are having is the right one for us as a group. To shed a little bit of light into where actually the decline in sales comes from, On the next slide, you see that, as announced, we do not have any external impacts yet. This will come starting Q3 with the acquisition and the integration of the LubCon group. But if you look at where the deviation comes from, the organic part of minus 1% is a combination of high volumes, yet slightly lower sales crisis. And on the other hand side, a little bit of headwind from currency. Compared to the beginning of the year, the Euro is significantly stronger compared to a lot of other currencies. And this is what is obviously reflected in the numbers as well. So looking at the P&L in summary, for me, this is a very sound picture. Sails slightly down, obviously, but big step up, especially in gross margins. So compared to last year, at the same time, almost three percentage points. This is due to a variety of reasons. One is really good price realization. One is a lot of focus we put into procurement, procurement conditions. And one is operational excellence, so becoming more efficient, more effective in how we utilize our factories. And all of that combined led to a better gross margin, significantly better gross margin end of the first half of the year. At the same time, we were able to manage our other functional costs quite diligently. We have a little bit of tailwind from lower freight and lower energy costs compared to the year before, but of course, we were not able to offset all of the personal expenses, the increases, given that we saw relatively high labor cost growth rates over the last two years especially, but in total, the higher margin we generated, the higher profit was able to offset. And this is why we are happy to report a step up in terms of EBIT margin of 1.4 percentage points compared to last year and a step up in EBIT total of 18 million. CapEx is a little lower year over year, but this is only due to timing. So we still stand by the commitment we made that we want to invest basically the same amount we depreciate every year. So this is what we're targeting at for this year too. Then that working capital we briefly talked about already. So this is the normal seasonal pattern. We usually see the ramp up in terms of receivables and inventories over the first half of the year, and then subsequent decline over the second half. Shedding a little bit more light on the different regions. As already stated, EMEA is developing nicely again, so very strong performance, similarly strong as what we saw last year in terms of growth rate. In terms of sales, they are down a little bit more than the other regions. This is majorly driven by the price variation clauses compared to the other region. EMEA has more OEM business. And this is where we had to adjust prices accordingly, but nothing really to worry about. And the negative currency impacts in EMEA, they're almost nonexistent. And this is due to the fact that we have a lot of different currencies in the EMEA region, as well as South Africa and Eastern Europe especially were a little bit weaker, and we got some headwind from currency. UK gave us some tailwind, and those somehow added up quite nicely. When we now move on, as already said, what for me is one of the biggest highlights this first half of the year is that we have a positive contribution from all three regions. This includes APAC as well. So if you look at this, we are looking at organic growth, volume-wise as well as price-wise. And we only have slightly lower sales because of the high FX impact we are looking at. This is majorly China and Australia, obviously. Compared to first half of last year, China developed really nicely. Our management team there has done a fantastic job, really positioning us and repositioning us in the market, giving the overcapacity we see there. So we are back to very, very nice growth rates. And the same holds for India and Australia. Although Australia, especially the first quarter, was a little weaker due to the heat and the lower agricultural activity, but this was partially at least compensated by high mining activity in the country. Compared to last year as well, we see a step up in terms of EBIT as well as EBIT margin. And this story nicely continues looking at North and South America. We're looking at organic growth rates as well with very good contributions, especially from the specialty lubricant business in the U.S. with a big contribution from our acquisition Nye, as well as very favorable development in Mexico. The high negative currency impact, this is only partially U.S. dollar. A good portion of that is contributed by Argentina as well. Whilst our Argentina business is still very small, of course, high inflation accounting has typically its negative flip side on that, too. So this is why we see a relatively high negative impact on top line. major contributor to that would be the Argentinian peso. But compared to last year, I think as well, very consistent picture, slightly lower sales only due to currency impact. So this is a translational impact only, no transactional effect. Much higher EBIT, so resulting in a much better EBIT margin. Looking at how our net liquidity developed, I think Most of that has already been set. Higher earnings after tax than we had at the same time this year, the same point in time in 2023. CapEx is slightly behind expectations, but we believe that this gap will close throughout the course of the year. Networking capital, we are where we expected to be mid of this year. We will see if networking capital builds up in terms of total value as well as in terms percentage of revenue unwind throughout the rest of the year. And those other changes, I think very consistent picture too. This is majorly accruals and provisions for bonus payments and for tax payments, given they're usually at their highest end of the year. Most of that has been paid in the first half of the year. And now we're slowly building up the provisions for 2024. So, this number will likely turn into positive throughout the remainder of the year. Of course, other impacts on net liquidity since December were the dividend we paid after our shareholder assembly, as well as the share buyback. It's just indicated the share buyback will be concluded, and we will then basically be through with that. So, no additional big for the cash out plan throughout the remainder of the year. To give you a little bit more insight into working capital, I think here you can see that quite nicely. So we usually have the low point of working capital end of Q4, and we then see a sequential step up in Q1 and Q2, and then basically further reduction in the second half of the year. This is what we've seen this year as well. We are comfortable with that development and reiterate our free cash flow guidance since we expect the unwind effect we see every year in the second half of the year. And if you look at the numbers, they are still relatively moderate. To remind you, we said we are guiding for a net working capital level on average in between 21 and 22%, so we are perfectly in line with that expectation. to give you a little bit insight on how pricing played out and how it developed. So in Q2, combined with Q1, we saw a slight uptake in Groups 1 and Groups 2 in terms of base oil, while Group 3 is still slightly down. But we expect that to stabilize or even slightly pick up in the rest of the year. And I think same almost holds for editors other raw materials we buy for production, although this is a relatively wide field given the number of materials we buy and the number of geographies we operate in. So this will be the picture, what we expect to happen in the second half of the year, pricing being stable or slightly up, really depending on the region, depending on the material we are looking at. But from what we see now, we do not expect any real spikes in terms of raw material cost, but rather a modest and flattish development. So putting all of what we've just heard together, I think we are very confident reiterating our guidance. Given that we had half year, we hit the half year mark more or less in terms of sales and in terms of EBIT. So, despite the adverse environment and the macroeconomic conflicts we are all aware of, we are very confident to reiterate what we promised to deliver in March and what we reiterated in Q1 as well. In terms of free cash flow, this is the normal seasonal development. So, we continue the guidance of slightly above 80% in terms of cash conversion towards 250 million. since we expect point one, the positive impact from the unwind of the working capital, and point two, then the positive contribution come the end of the provisions for bonus accruals and for tax accruals. All of this will contribute, and we are confident we can hit or possibly even exceed those targets come end of the year. And before we move into Q&A, some more updates we promised to you. So we now fixed the location for our capital market day, which will take place in December. And we are delighted to announce that we will hold the capital market together with one of our strategically very important clients, DMG Mori. We will meet at their location, basically at their customer center in Fronten, which is in the south of Germany, closest to Munich. Registration and more details will come soon, but please already block your calendars. We will have a dinner on December 4th, and then the main event will take place together with GMG MORI on December 5th. So having said this, I will hand back to Lutz, and we can start the Q&A session.

Yes. Thank you for that, Isabel, and we can directly go into the Q&A. So this moderator operates a takeover for the moderation of the Q&A session.