Fuchs SE

Yeah, good afternoon, ladies and gentlemen. This is Leif Ackermann speaking. On behalf of FuxSE, I wish you a very warm welcome to today's conference call on the fiscal year release. With me on the call today is Stefan Fuchs, CEO of FuxSE, and Isabel Arger, CFO of FuxSE. As always, Stefan and Isabel will run you through the presentation, and afterwards, we will have a Q&A session. All the documents for the call you can find on the IR section of our homepage since 7 a.m. this morning. And yeah, having said this, I would like to hand over to Stefan. Stefan, please go ahead.

Hi to all of you. Yes, Stefan, we can't see us, but I think I know all of you very well. We are very happy to present you the 2024 numbers in all detail later. Isabel will do that. But I must say we had really a great year in very difficult times. You know, we have announced an outlook exactly 12 months ago. And we made that outlook. And if you look at the cash flow, we even succeeded what we anticipated because we had a very good conversion of net profit into cash flow. And due to the share buyback and our increased EBIT, we have a 10% growth in earnings per share. I think that makes us happy. And we also think in the current times that aiming for another record result in 2025 is also a pretty good outlook. I would like to go with you through mainly three parts of my presentation. To start with, I want to go with you again one more time to the organizational changes we have announced on March 7th. And you know about them. First of all, we have a board with five board members and it will stay the same in the future. You have a CEO. Then you've got two colleagues representing the regions and our sales divisions. That's Timo, he's also my deputy, and Ralf, and then we have two functional board members. It's Isabel as the CFO, including IT, and it's Sebastian as the CTO, and that will also remain in the future. As we have announced on the 7th of March, Isabel, Sebastian, and the supervisory board together came to the conclusion not to prolong the contract. And if you look in the German corporate law, we have normally a five-year contract, so we are not so-called employees, but we are appointed for a fixed share. And we have, as the first-time participants, a three-year contract. And reviewing the three years and before heading into the last five-year contract, We all acknowledge that there is not 100% fit and I think that's what we expect moving forward. We have prepared for that for quite a long time. If you look to the letter to the shareholders of our supervisory board chairman, then the supervisory board was involved since July of 2024. I think that was a pretty good process. We had also a very good search firm and today is not the farewell of Isabel because She will be here also for the first quarter call and for the annual meeting with our shareholders. But I want to sincerely thank Isabel and Sebastian for what they've done for the Vox Group and wish them all the best moving forward. And before I come to Esma Zaglik, I will get involved in the next couple of months in the investor relations. I very much look forward to that. You all know me very well over all the years. So we agreed with Esma that in the first couple of months she will focus on getting to know Fuchs and Fuchs getting to know Esma. Her team here, the whole thing, and to give her adequate time, I will make the visits and the conferences together with Lutz. And I must say I really look forward to that time. Coming to Esma, she will start in about five weeks' time. So on May 1. And she has a lot of international experience coming from her previous companies. She also has IT experience, which is important to us. And some of her, you know, stays with Hella Beer, for example, was in the automotive industry. Rexnord is also a heavy duty industrial company from the U.S. involved in bearings and chains. But she was now with Freyao. That's where she also lives at the moment in Erlangen. She will take an apartment here in Mannheim, and she will have a two-month handover with Isabel. Isabel has a new assignment starting in July, so May and June will be the handover period, and I really think that's going to be a very good and smooth process moving forward. The second part is Matt Boulondi. He's 42 years old and he's since 21 years in the lubricants industry. So he knows as being a chemist, he knows lubricants in and out. He spent his entire life with Total Fina Elf or Total Energies today and with BP Castrol. The good thing about that company, you know, with changing jobs every three years is that he got to know many different countries, many different assignments. but his heart beats for the technology part for R&D, which is for us very important because we are very much into the technology and we are involved in the processes of our customers. So far to that part. And then I want to go really quickly with you through what we also presented at the Capital Market Day. But I think it's very important because we get questions from many companies we know, either customers or suppliers, you know, why do you so well in really challenging, difficult times? I think we see plenty of course opportunities. You know, very often when we discuss with you and we give you an example of one application, you always say, wow, how big is that? We don't have the one blockbuster part. So lubricants is a consumer and we have a lot of small type business pockets. And it's a nice cash generating business. But what we really see is when you look in the world and without any arrogancy, we say we keep daily life moving. And if you really look what is happening in the world, you know, whether we have local or global or not, we have all the time more and more people on the planet. As I said before, when I was born 57 years ago, there were like 4 billion university time, 6 billion to day 8 and we go to 10 in 2050. And at the same time, especially in China and India, but also in the future, I think in Africa, a lot of people want to have a higher standard of living. So they want smartphones, they want to go to vacation, they want to use a car, they want to have an apartment, which means we need to produce all of those things in the world and we have to achieve more with less. And the more with less, that's when we come into play. We continue to speak about lots of course opportunities, and I come to the segmentation part a little bit later. One more time, you know, moving your world is our company purpose. That's what drives us every day, and it's a very important purpose for us. And if you really look again what a lubricant is doing, you know, I don't want to be arrogant, but the lubricants are the small heroes, the invisible heroes in the world, because a lot of things you use every day either need a lubricant to make them work or a lubricant to manufacture them. And basically, we protect surfaces from corrosion and wear. We reduce friction and wear in moving systems. That's probably the biggest function a lubricant has to do. We cool machines and equipment, and we help to transfer energy. And especially the lower parts is a big part in the e-mobility. because lubricants get in contact with equipment under high voltage, and there is copper corrosion and other things, so the electric conductivity is very, very important, and the cooling part is very important. And without going through all the details, but we are used everywhere. Aside of what you know, agriculture and mining and steel and Transportation, we are utilized in the cooling parts of the loading sockets. That's quite a big business in China, but also the cooling of a car. You go to the entire food chain. It's one of our key segments we want to grow. And the circle around the food processing gets bigger and bigger. And if you go, for example, in a filling plant of a beer company in the US or to a Coca-Cola bottling plant in Europe, they have no interest in lubricants. All they want to make sure is we don't stop their machines and our lubricants are in line with all kinds of regulations. And we've also found out in the segmentation part that we don't want to sell only those specialties, but we want to service the customer in total. So also on standard type lubricants and I think that the market penetration gets bigger and bigger. The other part for us very important is wind. Wind is a The biggest wind business we have in the Fuchs Group is in China. It's a growing business. And in the wind turbine, you have a gear oil and you have grease. And that's one part. We made a deep localization in China. So we manufacture all of that over there. And also a lot of Chinese equipment gets exported. And with our approvals out of China, we can sell them also in other parts of the world. Semicron is a pretty new segment for us. Semicron, we have got two different applications. The one part is in the metalworking to produce the machine. So you have grade one and grade two metalworking fluids for clean rooms and really high-end applications. But you also need a lubricant to run a Semicron producing machine. And I think that's where we also come into play. You know we have about 30 different creases in each cart. We also know that in an e-car, you hear nothing if you don't have the radio on. And in the past, you had an engine or you had a diesel. But today, we need noise dampening creases. It's also something we learned from Nye. We had some before, but we've got more now. And noise dampening, I think, is a very cool application for us. The other part, honestly, you know, when I go back in my life, 15 years, the whole medical part was not such a big deal for us. Today we see in the medical arena, we see three different fields. We see number one, we see cutting and grinding fluids for titanium implants for knees and hips. We see coatings of the spring in one-time injections, either diabetes or, you know, to lose weight. And also the equipment in the surgery room needs to be lubricated. So we have a lubricant, for example, in the Da Vinci prostate robot. So I think it's a very interesting field for us to move forward. And that was also one of the reasons to acquire BOSS. Last but not least, we also had one product in the Mars Perseverance rover. That's a nice marketing tool. You don't get rich on that one, but it just shows that we are all over the world. What is the unique part of Fuchs and no other competitor really has got all of those ingredients? We are very close to our customers all over the world. So we have over 2,500 people in sales and application engineering. We do 75% of our business direct, which is all our specialty industrial and mining business. We only sell automotive aftermarket through resellers. We have the full product offering, which we have not really explored in all the markets. We have the best team in our industry, highly motivated. They walk the extra mile for our customers. And I think especially today, in today's world, we are independent. We have a stable shareholder and we have no debt. And I think that really helps for us moving forward to have that flexibility. Nevertheless, we have a balance sheet and we are not obsessed in having no debt at all. So we always look for acquisitions. And as most of you know, we don't see the mega thing to be bought. We don't see a $500 million or $1 billion But if you look on our businesses we acquired over the last 15 years, larger acquisitions were for us in 2015. Tendosine, bubble clutch, gear oil, today also the electric drive fluids come from that origin. So we scaled that business through our organization. It was a German business. Statoil was a regional part which we acquired for Norway, Sweden, and Denmark. really cool was nai because we were able to double nai within five years and nai is really for us the hub for medical and and semiconductor applications loopcon is also a specialty part they go into the middle dense fiber boards you know if you look at your kitchen plates or ikea shelves all of that is a is a continuous process you've got big machines manufacturing those wooden fiber boards on a continuous process. They need high temperature chain oils. They're also big in corrugated, so you know more and more Amazon stuff gets shipped, so you know you need much more cartons. So that's interesting. They're also in the railway industry, so some really cool segments. We acquired Strup, and it also looks and shows that we are always able and willing to do fast deals, because Strup was not in such a good financial condition. And we could close a regional, not whole, but we were really not present in Switzerland other than through distributors. And now we have a little plant in Switzerland. We have an R&D lab. And I think that for us was a very cool part. And then we acquired Bosch. It's rather small. They are near Stuttgart. They are near the cluster where Escolab and those type of companies are home in Tübingen. And we acquire them mainly for the medical part, but also for the high safety part like breaks and other things. So we continue to look for acquisitions, but you see hold on either strategy-wise or from a regional standpoint. Then without going too deep into the exercise, for us Fuchs 2025 was a really cool journey. A wonderful time from 2019 until today, and we were involved in culture, structure, strategy. And towards the end of the year, this will be the end of FUCS 2025, and we are in the middle of fully preparing for FUCS 100 from 2026 to 2031, because we will be 100 years old in 2031. And again, this will not be a revolution. It will rather be an evolution. And if you look in the strategy, also for you, it's mainly about segmentation. You know, we are decentralized companies with a lot of local decision-making, high incentivization that allowed many of our MDs to either go for automotive aftermarket, food grade, metalworking, and et cetera, et cetera. And we get so excited about things that for us, focus and priority was important. So we defined about 50 segments all over the world and we focus on 12 now. But then we also don't allow a larger country not to focus on one of our key and core segments. I think that will allow us to grow in the future, and you will see more in FUCHS 100 once we approach the latter part of the second half of this year. A few news, you know, what we published over the last couple of months is in the FUCHS group, number one in South Africa, We did last year sales of 118 million euro. So it's a sizable business for us. It's in South Africa, but also in Southern Africa, mainly around automotive, around mining specialty, and also in industrial. And over the last couple of years, not all in 2024, we invested 26 million euro on the site. And we have now much more capacity to also go after larger types of businesses, and I think that was very good. Many of the customers visiting us in South Africa are amazed about our setup, because no other global lubricant company has such a setup like we have in Isendo, nearby Johannesburg. The other part was the acquisition of BOSS. It's a smaller acquisition, but on the left hand, you see Ralph Reinbold, my board colleague. You see Mr. BOSS Gunsch and Mrs. BOSS. They were the founders. So we are happy they both continue to work for us, focusing on the medical part. We want to make that to our European hub, you know, and make like a second night in Europe out of both. So that's very cool. On the right side, you see Susanne Heyrich, our managing director in Germany. And last but not least, it's a small country, but very important for our international mining customers. And with our Today's distributor, we founded a joint venture. He owns 40%, we own 60%. We sent over a young German colleague who is the managing director, and we have now set up in Peru, a side of Chile, Argentina, and Brazil in South America. And I think that's also very, very good for us moving forward. And my last slide is that we are happy and proud to have received the second time in a row the Global Transition Award, which is from the renowned German newspaper, from the Handelsblatt. There is a whole jury behind, and they looked at us based on their catalog. We were state-of-the-art with regard to reduction of Scope 1 and 2 emissions and also work on our Scope 3 emissions. So I think that also shows that with regard to sustainability, we are on the right way. Now I hand over to Isabel to go through all the numbers and then later on we look forward to your questions.

Thank you. Thank you and warm welcome from my side as well. As already indicated by Stefan Fuchs beforehand, we ended 2024 with yet another record result. I only outlined a few highlights on this first slide, and we'll then go into the details in the following 15 to 20 minutes. I think what we liked about last year is that despite a very challenging and difficult economic environment, we managed to keep our sales flat. The 0% year-over-year you see here is a little misleading because there's a lot of swings and roundabouts behind that number. On the negative side, we saw price adjustments, especially driven by our price variation clauses and slight negative impacts from foreign exchange revaluations. But on the positive side, we saw volume growth. So the first year was significant volume growth after rather flattish development the last couple of years. And we saw external growth. especially contributed by the LoopCon acquisition, which we consolidated for the first time, if you recall, in August 2024. What we liked even better was that this growth we saw was highly profitable. So we managed to up our EBIT by 5% over flat sales, which means we took another step towards our mid-term target of 15% EBIT margin, and improved the margin compared to the year before by 0.6 percentage points. Major positive impacts here came from the mixed effect. So the growth we talked about earlier was majorly contributed by our specialty and automotive aftermarket segments, which are more profitable, and by lower raw material costs in total, but yet our procurement department did an amazing job in renegotiating some of the contracts which contributed nicely to our earnings too. This resulted in a significantly higher earnings per share, 10% up year over year for both share classes, over proportionate to EBIT growth since we ended our share buyback program last year, and the stock we bought back is now liquidated. Last but not least, stronger than expected cash conversion once again, so second year in a row, So that means our entire earnings could be converted into cash from last year. What does that mean in detail? We are now back to our normal pattern in terms of cyclicity. So Q2 stronger than Q1, Q3 stronger than Q2, and then a little softer Q4 due to the number of working days. Yet we saw a slight increase year over year for Q4 in sales. And we managed to confirm our EBIT we generated last year in terms of profitability. Why was it only on prior year level? Very simple answer. Due to the lower number of working days, especially in December, given that Christmas was in the middle of the week and all of our big countries closed down for longer, especially our customers, than what we saw the year before. What does that mean for our P&L? I think two highlights to take out here for me is definitely the gross profit and thus gross margin development. As already said, we had a very positive impact from mixed effects. The entire volume growth we're looking at was contributed by specialty and automotive aftermarket. which as well means we managed our OEM and industry sales on a volume, sorry, on a flat level in what was a more than challenging environment last year, when you read the newspapers. So all of our sales teams did amazing jobs to bring in new contracts, bring in new customers, up the volume, and that in a very profitable way, supported by procurement that resulted in a gross profit step up of more than two percentage points. Part of that was then converted into additional EBIT, not to the full extent, since we still have to somehow bear with high increases in personal expenses. Thus, we are still very careful in adding new people. The headcount increases you saw last year was majorly due to acquisitions and headcount insourced from formerly external providers. We are still very careful in terms of adding hats, given the very challenging environments we face in a lot of the regions we operate in. Below Abbott, you see two numbers I'm very pleased with as well. CapEx has already promised several times that after the Big Invest program ended in 2020, CapEx will be on the level of depreciation, which is 80 million a year, which was spot on in 2024. and only a very slight change in net working capital. And this is majorly due to the fact that we know we will see volume growth this year due to some contracts we won and we signed last year. And the countries who need to deliver already stocked up end of the year, so they are able to or were able to deliver January and February when those contracts came into effect. This is why we saw a small spike end of the year, but I think this is good inventory the moment we already have contracts and obligations on hand. The third highlight now comes with a look into the region. I think the story we told, the first three quarters continue. In 2023, we saw all of the growth in terms of earnings coming from the EMEA region. which was good. But of course, we always said we wished for all regions to contribute to those nice numbers, to those nice growth rates. And this year, 2024, we really saw that all of the regions stepped up. In EMEA, we had a lot of great performing countries. Germany, once again, very strong. And then Eastern Europe, especially Poland, to mention, very strong. South Africa, we just saw the new Factory, which recently opened, with very strong growth rates. But then again, Southern Europe, Northern Europe, very good too. So very hard to just pick a few since all of the teams did an amazing job last year. And then obviously external growth as well. For LoopCon, we consolidated first time in August. And then Trupp, who joined the group end of last year in Q4, but with no significant contributions for 2024 yet. This resulted in an EBIT step up of 7% once again, which was really good, especially given the fact that this result includes the restructuring cost in France we already talked about in Q3. What was very nice to see was a step up in Asia Pacific. Major contributor to that was China. So China found back to old strength. which was a huge effort by our Chinese colleagues. They did really well and managed to win over new contracts to establish themselves as preferred supplier for a lot of Chinese companies. And we now see really nice growth rates in China, but then as well in India and Australia too. And last but not least, our colleagues in the Americas. The development in America was rather flattish in 2023. It was a challenging environment, especially due to the political frictions and uncertainty we saw in the US. Nevertheless, the team managed to keep the volumes, keep the revenue, but grow in a very profitable way, which is majorly a mixed effect, obviously. And if I have to mention one thing here, it's the... development of the North American specialty business, namely Nye, and the strong growth rates we saw in Mexico yet again. So Mexico now established itself amongst the five biggest countries very solidly in the Fuchs group. And I think really that concludes the view that Fuchs is in a very comfortable position from a geographical point of view. So we can stand on many more legs than we anticipated beginning of the year, plus the exposure to so many different industries, different end markets, we can balance each other out. And this excellent performance in the regions and end markets resulted in a more than strong cash position. Our free cash flow is already set with a cash conversion over net profit of 1.0. So a little more than 100% was converted into cash due to very strict management of capex as well as inventory. And despite the share buyback program plus $100 million spent on acquisitions, we ended the year on a net cash position, which is something we are very proud of. So yet another year with a very strong balance sheet and no debt position by end of the year. One of the major contributors, the working capital. I think in terms of percentage, slightly higher than the year before adherent. As already explained before, this was only due to the fact that we stocked up in some countries due to contracts with higher volumes that were signed last year, and we knew that delivery obligations will start early 2025. That was the only reason why we saw slightly higher inventory levels. I think to conclude the operational review, again, you know, we replaced the charts because they were rather flattish with those boxes. But I think, once again, raw material markets, rather flattish. So nothing out of the ordinary we observed in Q4. If anything, slightly lower prices on base oils, but I think nothing too serious. And this is what we expect to see into Q1 and beyond for base oils, as well as additive packages and individual chemicals. And this will result in the fact that we will propose the 23rd quantitative dividend increase to our General Assembly, which is a 5% increase, $0.06 per share class and is paving the way to become a dividend aristocrat in two years' time from now. This is the promise we gave to the capital market and we stand by, and we are proud that we were able to earn sufficient cash to yet again increase the dividend quite significantly in a more than challenging environment. That brings me to my last slide, the outlook for next year. We are proud that we can make the next steps towards our targets and guide towards what our record sales and EBIT numbers of around $3.7 billion worth of sales and $460 million worth of EBIT. If we reach those numbers, those will be the highest numbers recorded in FOOC's history ever, and then as guided before the free cash flows at an 80% cash conversion rate. That brings me to the end of my presentation, and we open the floor for your questions.