Fuchs SE

Good afternoon, ladies and gentlemen. This is Silas Ackermann speaking. On behalf of FuxSE, I wish you a very warm welcome to today's conference call on the Q3 figures. With me on the call today is Isabel Adelt, our CFO. And as always, Isabel will run you through the presentation in a second. Afterwards, we will have a Q&A session. All the documents you can find on the homepage below under the IR section and since 7 a.m. this morning. Having said this, I would like to hand over to Isabel. Isabel, please go ahead.

Thank you, Lutz, and warm welcome from my side as well. I'm happy to introduce to you the results as of September year-to-date as well as our third quarter. I think what we can report looking at the highlights of our performance, we closed a very strong third quarter as well as a very strong year-to-date performance. especially given the challenging market environment we're in in Germany, but globally as well. So looking at the three numbers here, my highlights would for sure be that sales is on prior year level. So only reason why it has down slightly is currency effects or translational effects. But volume year to date, volumes are up, which is explicitly great looking at how challenging the market environment is. So across all regions, we saw volumes picking up, which is majorly due to the excellent work of our sales team of winning over new contracts. And on the other hand side, very good management of pricing versus the backdrop of slightly lower input costs compared to the prior year period. Due to that, we managed an overproportionate growth in profitability. The EBIT here to date is up 7%. despite some one-time effects. I will elaborate on that in a few moments when we look at our EMEA numbers. So we managed to grow our EBIT margin to 12.5%, which is up almost a percentage point from prior year and shows a very good margin recovery. And then last but not least, we saw very good cash generation in Q3 again, obviously below prior year, but we had some extraordinary effects from there, some catch-up effects from the very high pricing in previous years. Now we are back to a more normal pattern where we see a relatively weaker cash flow in the first half of the year and then unwind effects in the second half. And this is, so we're really satisfied with this free cash flow number at almost 200 million as we close Q3. I think very good performance, majorly driven by the good operational results for sure. That taken together enabled us to grow our earnings per share, double digit. And I think one contributor for sure was the good operational result. The other one was the conclusion of our share-by-back program during Q3. So this is now finished, and the stock will be canceled throughout the remainder of the year. This is why we're very happy we can, in this challenging market environment we're in, confirm the outlook we gave to you beginning of the year. And we are more than confident we can deliver those numbers in the next couple of weeks. So looking a little bit more into the details, our sales development shows a good improvement year over year, as well as quarter over quarter. And of course, I mean, the first question that arises is, How do we manage to grow sales and grow in a very profitable way in such a difficult market environment? And I think the answer, once again, is we have done our homework in terms of segmentation, in terms of strengthening the very decent setup we are having. And I think good news is that this growth we are looking at is carried by all regions. So last year, at the same time, the message was we're growing nicely. but most of the growth is contributed by the EMEA region only. This year, we're looking at a much more diversified growth pattern from all regions and from all kinds of industries. And I think this growth is carried by not only price realization, but by volume growth as well, which is explicitly nice in this market environment. A very similar pattern looking at our EBIT development. So improvement here over year as well as quarter over quarter. A step up in profitability again, which is really nice to see. And looking at the 3%, we are actually looking at over-proportional growth given we had a one-off effect in the single-digit million euros in Q3 contributed by the EMEA region. So there we're looking at a smaller portion of that revaluation of the pension scheme in the UK. I think a bigger portion is due to the closure of the production that is now officially announced in France, which is part of streamlining of our European footprint and a more thorough capital allocation going forward. So all of the costs associated with that are catered for in our P&L as of end of Q3 already. The effects So the positive effects will only come as of next year. When we look at the sales development a little bit more in detail, we can see it looks pretty flattish, but I can assure you there's a lot of work behind. So the market environment is very tricky, especially looking at the automotive market, but we managed in automotive, but especially in all other industries we play in, majorly the specialty segment, to win over new customers and new contracts, add additional volumes, and by doing so, have what we say is a flat organic growth, so a little bit higher volume and a slightly negative impact from our price variation clauses. The external contribution are the first two months of the LoopCon acquisition you're seeing here. And then a slightly negative currency impact, but that is translational only contributions from almost all regions, although impact in APAC and Americas is a little higher than in Europe, where we have positive and negative contributions that balance each other out almost completely. When we now move to our P&L, I think very solid, very healthy. So in addition to what I already mentioned, I think one highlight here is obviously the gross margin development. We are now 34.6% again compared to 31.9% the year before. Majorly driven by lower material costs, so excellent contribution by procurement, but then as well by our sales team who really managed to keep the prices at a very good level throughout the entire year. Functional costs are up as well. I think major contributor to that was the inflation-driven wage adjustment. So I think important method is we are still very careful in adding new hats. It looks like it jumped a little bit when you looked at our report, but those were, I think, in Q3, majorly the acquisition of LoopCon, who increased our hat count by more than 200 full-time employees. And then throughout the rest of the year, the insourcing of the high-rec material warehouse in Germany, which we now run ourselves, and the win of some big service contracts in Poland from one of our biggest competitors. And we took over those people who are on customer side for this and the triple digits as well. Taking this out, our headcount is flat year over year. But of course, we we are working on productivity and efficiency to make sure to compensate for those higher personal costs we're looking at. But I think overall, a good step up in terms of EBIT margin over proportionate growth and profitability. So this is what we like to see. And then change in working capital, of course, looks massive compared to prior year. So I think we have to keep in mind that prior year we had a lot of unwind effects and a lot of active management effects from the years before where we had relatively high working capital levels due to the high price increases in 21 and 22. Now let's take a deep dive into the single regions. As already stated before, I think what we explicitly like is a good contribution from all three world regions. Last year it was more focused on EMEA. This year, once again, EMEA is performing in a very strong way. But the other two regions, we will look at that in a couple of minutes, are contributing very nicely too. When you look at EMEA, I think all of the countries, give or take, are contributing very nicely. So if I had to pick two, for me it would definitely be Germany. Germany is growing nicely. despite the extremely difficult economic environment. I think all of you are aware of how the automotive industry, or for that matter, all the big industries, chemical industries, are performing. But we are still growing, and we are growing in a very profitable way. Another very positive contributor is Poland. I already mentioned the effects of taking over a service business from one of our biggest competitors, where we actively manage lubricants on site. But that's taken together with some really nice other wins and new businesses that were brought in. Very good development. I think those are really just the two big ones. All other Eastern European countries performed really nicely. The Nordics, yet again, very good performance. UK, Southern Europe, so I think across the board. I think another highlight, we finally closed the acquisition of the LoopCon Group. So as of August 1st, they're officially part of our P&L, and we're really excited to see how that develops. Plus, we signed a letter of intent to take over the Strupp Group, a Switzerland-based company. So if all goes according to plan, we can hopefully still close that one during this year too, which will be another nice addition to the portfolio and strengthen our foothold in Switzerland. Looking at the APAC region, I think you still remember last year was still challenging, given that China is still the heavyweight in that region, and China did not bounce back from COVID as quickly as everybody would have hoped. We now see China back, I would say almost back to all strength. This is due to the excellent performance of our Chinese sales team, They are gaining market share. They are taking over new contracts. I think especially in the wind industry, then automotive, especially in the e-car industry, they're doing a very good job as well. The biggest contributor to that growth, for sure, China, as I said, the heavyweight in the region. But I think a few others to mention too. So Australia is growing very nicely as well, despite a rather weak agricultural demand this year. And due to the weather conditions, the mining developed very nicely. The automotive aftermarket developed very nicely. So great contributions across the board. I think not to forget Southeast Asia with India becoming a constant growth engine, still from a very low base, but they're growing double digit since a couple of years now. And we can see that our team there, but our business too is becoming stronger and stronger. And not to forget the new plant we opened in Vietnam last year. So their business slowly starts to pick up again. And we see that it was a wise decision to enter the Vietnamese market at a relatively early stage. And then last but not least, our colleagues in the Americas. I think similar picture in terms of slight organic growth, higher volumes. But then, of course, massive FX impacts when you look at the top line, but they're growing in an extremely profitable way. Part of that is the mixed impact, for sure, because what is growing really nicely in the Americas at the moment is our specialty division, majorly the Nye business, located at the East Coast. Really big profit contributor, excellent growth rates, but as well to mention our subsidiary in Mexico, They're growing very strongly, nice new businesses, and I think one of the big markets for the future, especially now with some of the Chinese OEMs moving production sites to Mexico. I think those two factors mainly, so the Nye business and the specialty business in general, as well as the Mexico business, were able to more than offset the relatively weaker performance in South America. There's nothing wrong with our business particularly, but I think Argentina with the high inflation, Brazil with a shaky economic environment, it's just I think a very difficult environment to currently navigate and the economy is very depressed. Especially the high inflation accounting in Argentina of course takes away a great share of the profit, but I think the great development in North America is able to more than offset this this rather negative development in South America. So with the operational results, we are really satisfied. And now looking at our net liquidity, I think this is something that came along really well, especially in Q3 as well. You can see that we're looking at a great step up in terms of cash generation compared to half year. This was expected. And of course, biggest contributor to that were the great earnings after tax, especially looking at the great Q3 we had. The working capital is slightly higher than expected, but nothing to worry about. Major impacts to that were the extremely strong September, so a lot of receivables converted in the last two weeks. Those already started to unwind in October. And then, of course, the consolidation of LoopCon, which brought in further inventories but this will normalize as of year end too. So we are expecting a very good tailwind from working capital unwind in Q4. And I think good news behind that is that we expect our net liquidity to be at least around zero again at year end. And this includes all the spends we had besides dividends for our share by back program, which is now included. plus 100 million we spent on all the acquisitions we did this year in total. Looking at the working capital in a little bit more detail, I think we see a rather stable development, as said, majorly due to the fact that September and especially the second half of September was extremely strong. So what we currently see is working capital unwind and we expect the level to be significantly lower again at year end. I think one other thing we always like to mention is raw material pricing, although right now I think nothing exciting to report as prices have some swings and roundabouts in their different regions, especially looking at base oil for different reasons. But we largely expect pricing to be stable. And this is a trend we see for over a year right now. Of course, some categories are up slightly, some are down slightly. But so far, we were able to really hold that on a very stable level, partially because there's still a lot of supply in the market, partially simply because our procurement department did a good job So I think this is something that has stabilized quite nicely, and we are expecting to see the first price increases with our customers again during next year. All of that taken together, we are very happy, already stated initially, we can confirm our outlook for the full year. We believe we are well on track. Of course, it's still a way to go. And looking, for example, at the publications we saw today, The market environment is not getting any easier to navigate, but I think we are very confident with just continuing what we did in the first nine months of the year to reach those targets. So we're happy to confirm sales at 3.6 billion, EBIT at around 430 million, and free cash flow at 250 million, with the SVA then the latest number coming out at around 240 million. Then last but not least, gentle reminder, our Capital Market Day coming up quickly. So we would be more than delighted to welcome you December 5th and front end at our dear partner, DMG Mori. So you can see some of our products in motion. Can be assured we created a very exciting program, a lot of new things to communicate. So in case you haven't registered now, please do so and we would be happy to welcome you at the Capital Market Day. And having said this, I would hand back to the operator and open the floor for your question.

Thank you. 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. Please stand by while we compile the Q&A queue. Our first question comes from the line of Matthew Yates from Bank of America. Please go ahead. Your line is open.