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.

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. We will now go to our first question. One moment, please. And your first question comes from the line of Matthew Yates from Bank of America. Please go ahead.

Hey, good afternoon, everyone. Firstly, Isabelle, just wishing you good luck. Thank you very much for all your help the last couple of years. Good luck with the future. Stefan, I wanted to come back around your introductory remarks around segmentation. Clearly in 2024, we can see the positive mix effect from those initiatives moving you into higher margin business. But you also talked about segmentation, perhaps unveiling an opportunity to move into some more standard products, which I guess would possibly at the expense of margin, but nevertheless good for your folks value added metric that I know is an important part of the evaluation. Can you help me think about mix, therefore, going forward and the margin trajectory? Because those strike me as two kind of opposing forces of some things being incrementally good for margins and some things perhaps incrementally dilutive. Just how you're thinking about that would be interesting. Thank you.

Thanks a lot for the question. I think that's an excellent question. And you can have days of discussions on that background. What we learned over time is that we should really focus on the EBIT margin. And if you take, for example, a high-end specialty business with very high margins, that is a good and healthy business, but you have normally small parcels of sales. When you go to a large OEM and you have a large volume private label business or you go to a large mining house, the contribution margin is normally lower. But, you know, looking at the amount of sales you do, the underlying expenses in relative terms get lower. So the earnings you do is much better. And the second part of it is also that you will see that, you know, by definition, if you say a standard type grease, a standard type hydraulic oil, there are some companies who might be able to do that cheaper than us. But if you go to an Australia mine, like an open pit mine, and our driver delivers the grease into the mine, he needs the license to enter the mine. And he also needs a lot of training in Australia to lubricate the equipment while it's moving. So not just per type of volume or per type of product group. You can say this is a specialty and this is a commodity. What Timo did is really because he's in charge of Fuchs 100 and you know, our problem a little bit is that we get excited about many things at the same time. So we said, you know, we have 50 different segments and we focus on 12. Now we acquire Lookon and you have two new segments coming up, you know, like Drain and the wooden fiber business. But what we will see in Fuchs 100 that we will have a few really distinct where to play areas where we can go and specialty will be one part of it. But, you know, things like a genuine brand business or automotive aftermarket is the other part of it because we see a lot of cash generating business at good margins. And Isabel said, you know, last year was automotive aftermarket and specialty running both very good. And both were also leading to that number. And as you know, our long-term target is still the 15% EBIT level. And all those businesses we focus on will pay onto that. It's not just the pure profit or FEA number we look at. We also look at the relative returns.

Okay, thank you. And if I can ask a second question. You mentioned, I think, Mexico as a top five country. Are you flagging that now as a potential risk? that if we see a breakdown of NAFTA and tariffs, that part of the business becomes vulnerable to lower demand? And how have you thought about potentially having to shift some of that volume north of the border over the coming years?

That would be no problem at all, because our manufacturing capacities are much bigger in the US than in Mexico. And in the last 10 years, we did very well on all the businesses closing up in the U.S. to follow them to Mexico and to service them over there. We in Mexico, we have a site in Querétaro. We are able to manufacture most of our metalworking fluids there, but everything else, we are completely out of it. We have toll blenders in Mexico. And therefore, we also bought a property in San Luis Potosi, which we will develop because the light will not go on or off at that time. But if stuff moves back to the U.S., for us, it's fine. Nevertheless, you know, What we can't influence is the consumption in the U.S., and that will suffer for some time, and life will be more expensive in the U.S. But from a pure manufacturing standpoint, we can manufacture in Canada, in the U.S., and in Mexico. That's not a problem for us. I think if there's somebody equipped for that circumstance, it is really us. Many of our customers, they have now 15 plants in Mexico and only two remaining in the U.S. For them to build up their plants again is a much bigger problem. But for us, from a pure manufacturing and supplying standpoint, not a problem.

Okay, thank you both.

Thank you. Your next question comes from the line of... Apologies, one moment please. Martin Rudiger from Kepler-Shiver, please go ahead.

Yes, hello, good afternoon. My first question is more related to the latest development in politics. The Bundesrat has now approved the targeted debt orgy by the upcoming German government. To which extent can folks benefit from the special funds, especially from the 500 billion extra budget for infrastructure? I think about your activities in construction, in the cement industry, in the metal treatment industry and so on. Secondly is regarding the digitalization costs you mentioned in your press release this morning. Can you quantify what you fear about the burden from these digitalization costs in 2025 and maybe beyond. And finally, how do you see the current business environment in your individual regions? I guess there is a difference regarding the demand patterns when we compare, for example, China, Europe, and the U.S. Maybe some words on the patterns you see right now at the beginning of this year. Thank you.

Thanks a lot, Martin, Rüdiger. I think really good questions. I start with the last one on the business environment. What do you see that within Europe, our industrial business, you know, related to automotive manufacturing, but the entire industrial business and also the first field part of OEM, you know, is not running at full steam. And we see that since a couple of months. Good is in Europe specialty and automotive aftermarket. Also, when you look at our so-called OEM business, the larger part of the business is what we call genuine brand, and it's not first fill, but rather aftermarket done by the OEM when they sell branded lubricants in their bottles and in their marketing. When you go in China, second half of last year was good. The beginning of this year, we were satisfied, so China is okay. India is okay. Australia continues to run. South Africa runs well. Within Europe, also one of the top five companies for us is Poland. So we did very well over there last year. Also southern European countries were running okay. The U.S. had a good second half year. In the beginning of this year, I think this consumption part and high inventories of new cars, we have to see how that develops. And that also leads me on what you asked about Germany. On the one hand, I think it's good that they made the decision now to spend more money. Being a German taxpayer, I would also really like to see some savings and not only what we call, you know, I hate to say when you make new debt and you call it a Sondervermögen. Vermögen for me is wealth and debt is a problem. But I think it's good, but I would like to see that they finance one part of that through bureaucracy winding down and through savings. But if you look at it, where it goes into military manufacturing, but mainly in roads and in bridges and in railways, that will all help us. But the question is, once the decision is made, whether the companies have the capacity to really do all of that within the next two to three years, I really doubt. I don't see that as a major boost for this year, but definitely it will help. With regard to the Transform to Grow, Isabel can answer much better. But Transform to Grow is for us not a money hole, but it's really for me and before Isabel starts, a one-time opportunity to really clean up the past of the Fuchs Group. And we look forward because that will be our basis for our future digitalization because we will have one core system. And therefore, I don't like the burden part of the question, but Isabel can answer better.

And there's, of course, two sides to that metal too. So Martin, you mentioned digitalization. And of course, this is far beyond just systems. We have this AI partnership that's somewhere all across the board. And I think what we generally expect is a significant increase in digitalization costs, not only due to the T2G, but sustainably since the way we work will change dramatically in the years to come. Regarding the T2G you were referring to, as Stefan said, we started to build the template, but we will then, on the other hand side, see the impact, so the positive impact from that by becoming more efficient, more productive, more resilient as well. So for 2025, this is all baked in in the guidance, majority of which will go into COPX. You will see later this year. This is part of our normal COPX budget. So the cost we will see this year is a rather small number, and then it will be distributed over the next couple of years. In every country we roll in, we will see costs, but we will see benefits on the other hand side as well.

Thank you.

Thank you. Your next question comes from the line of Lars von Kleff from Deutsche Bank AG. Please go ahead.

Yes, good afternoon. Thank you very much for taking my questions. Three quick ones, if I may. First, Isabel, you said that 2024 saw significant volume growth. I mean, net-net deducting the price effect, it was flat. Just for me to get a feeling, what does significant mean? Mid-single digit percentage figure?

Yeah, about that ballpark there.

Okay, perfect. And then, I mean, you build up networking capital in order to generate revenues in Q1. So I assume Q1 so far has started relatively good and then successful for you, correct? Correct.

So we saw a satisfying start into the new year. I mean, I think there's light and shadow when you look at what's happening, not only for folks, but I think in the world as well, right? So we had a very strong start in January. But, of course, what you see is a lot of uncertainty in the market, especially in the U.S. market, but with some kind of ripple-off effects globally due to the uncertainty what the new office in the U.S. will do next. So I think this is something to watch carefully. We see a nice development in terms of volume, in terms of sales, but of course, a lot of uncertainty, a lot of hesitation on our customer side too. So this will for sure be something to watch.

Perfect. Thank you. And then the last one also for you, as long as I still can ask questions and get on your nerves. SAP, the integration is and was a key project for you. Could you update us on the status quo and who will take that over from you, Isabel? Will it be Esma?

I mean, we are perfectly on track with the project. We are about to close what we call the template phase. So we have more than 80 colleagues full-time globally working on the template. They defined all the processes. And we now really start to build and test the templates. And we are well on track towards bringing the Northern Americas entity live during 2026. So, so far, all according to plan. And that will be part of the handover I will do with ASMA in May and June as well.

If you look at our Transform to Grow program, the one part is the ERP part around going from R3 to S4. And we have a group CDO on that, and we have regional CDOs in Australia, China, the US, and Germany. But I would say even more important is the preparation for the rollout. So the one part is process, process harmonization, and we have a global business partner for the processes reporting today to Isabel, tomorrow to Esma. And he has a team of 24 process people in the regions. And we have 24, you know, shadows of them on the IT side. So that's a heavy team. And then we have another string on the data side, you know, for cleaning up past data, you know, building up data structures. Being a decentralized company, we have got very strong teams in the large countries and in the whole league. So I think we have a very stable team together. But the tension is pretty high because that's a huge undertaking.

Crystal clear. Thank you very much. I'll go back to the line.

Thank you. As a reminder, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. We will now go to the next question. And your next question comes from the line of Michael Schaefer from OdoBHF, please go ahead.

Yeah, thanks for taking my questions. The first one is on your top line outlook. So you look for 5% sales growth and you basically indicate that this should be primarily volume driven. I wonder whether you can be a bit more, let's say, explicit. Where do you see the pockets of growth in 25 in the regions, maybe end markets you are looking into? The second one is more on your cost base. I mean, you also, I think you mentioned it on one of the slides, you closed down French production capacity last year, provisioned a bid on that. So I wonder what's basically the outlook for the cost base, the fixed cost base you can share with us heading into 2025. And then last not least, you indicated that China is back to old strength. I wonder what this really means to you because looking into profitability level, APEC is certainly not yet back where it used to be. So I wonder whether it can shed a bit more light how you see the Chinese market evolving throughout 2025.

Thanks a lot, Michael, for those questions. First of all, because one can always remember the last question the best, coming to China, you said that it's back to all strings. I said it had been much better in the second half and in the beginning. But as we all know, China is not at the old strength as a country. But we were happy with the development in China, and they have good plans together. So I think they are not at full steam, but much better than in 2023 and in the first half of 2024. When I look at our P&L, and it is clear what I say, but our P&L is top line, margins, and expenses. That is decisive for us. coupled with the cash, how much MOWC do we need? On the margins, I'm not concerned of this year. So it looks pretty good. I've seen, as you have seen, you know, the cross-margin was a little bit down in the fourth quarter. That was not a tendency. So I'm not so concerned about the margins this year on the cross-margin level. Top line, we have got good plans because we made a couple of contracts already. So the one you know about is the Mercedes aftermarket business, which we also advertised it because it's Being a private label or genuine brand business, they also put our logo on it, and especially since one part is the U.S. and in Canada, we have millions of portals with our brand name, and we want to grow an automotive aftermarket there. That's one part. We also built up our mining business last year. We are on a good ride with the Nye business, and we did further acquisitions on the specialty part. The question on the sales side is really what is going to happen, you know, now in North America, how is Europe going to go in the next couple of months? And I must say, unfortunately, 2025 is the sixth consecutive year where we have got almost zero visibility, you know, 20 and 21 were COVID years, 22 and 23, we had that 70% raw material increase. And I appreciate you, you know, pushing us on the 15% EBIT level. As long as those raw materials don't come down and they stayed on that high level, you know, that will take some time. But also 24 with the wars going on and now in 25, you know, with all the tariffs, it's going to be a year where we have to see month by month. We are confident. I mean, today we published an outlook we believe in, but we are always conscious about our cost base. I mean, the one part what Isabel mentioned is that we have pretty high increases in our personnel cost. And then that is one part because We always look on conversion rates, how much of incremental contribution profit do we convert into profit. The other part is also from acquisitions. So first of all, I buy a company with everything they have. Over time, obviously, we will have some scaling impacts because we will cater for some of the stuff from our own organization. Nevertheless, Lucon is a growth acquisition for us. Switzerland is a growth acquisition. Therefore, that's the one part. You mentioned France. Yes, we closed a smaller site in Germany two years ago in Bremen. France is a larger site and also Isabel rightfully said we recorded for the social severance part of that announcement last year. All the transition will be done this year. So this year we have almost double expenses in the books because The receiving plans in Germany, Italy, Spain, Poland and the UK have built up a small amount of personnel and we still have got the entire team in France for the full year. So therefore, you won't see savings from that part coming. But all in all, we continue to micromanage our costs and are also pretty diligent on new positions. With the exception of our digitalization part, we've really increased the team, but that's my answer to your cost question.

Thank you very much.

Thank you. Once again, if you would like to ask a question, please press star 1 and 1 on your telephone keypad. That is star 1 and 1 to ask a question. We will now take our next question. And your next question comes from the line of Konstantin Wichert from Baader Helvia. Please go ahead.

Yeah, thanks for taking my questions. And also, Isabel, from my side already, also it's not the last call, but thanks for the work together already. And I hope that we see each other in Switzerland then, as you have basically come closer to me. On the question side, maybe two remaining from my side. The first one is on maybe, again, I understand that you have a regional setup and therefore should see limited impact from the tariffs on the sales directly, but given the deteriorating GDP growth, that we've seen basically in the outlook over the last weeks. How has that impacted your outlook then maybe compared to what you were expecting two or three months ago? And the second question, just the standard one for me back on the pricing, I think in the third quarter, you mentioned that your customers or the environment is generally becoming more receptive for small price increases again. How has that evolved over the last months given basically that we see at least a weaker automotive production in Europe and North America, but on the other hand side, how maybe the path on tariff-based raw material price inflation, is that maybe something that should or could lead to price increases nonetheless?

I think on the tariffs, if you look on them, we would rather go for a surcharge. for the time being, but also our suppliers come to us with surcharges. So we have to just wait and see a little bit, but definitely we are not going to Ethos, when you look on the general market, and I think it's a really cool question because pricing is the most important part of us, and we have learned to also do price increases just to cater for our cost increases. But we do the one or the other price increase in the markets, but you also have a tremendous pressure from the car manufacturing industry, from component manufacturers and from those type of customers. So I think there are pluses and minuses, but I can only repeat my statement. Margins is not of my concern for this year with regard to contribution margin or, let's say, cost margin. And the other part is the different emotions we went through, you know, coming up with our outlook. I'll leave it to Isabel.

No, I think regarding the outlook, of course, we discussed quite lengthily But so far, I think it's still too early to give a real estimation on impact US tariffs might have on our results this year. As already indicated, we run over new contracts, and we are confident we can grow. But of course, not everything is in our hands. So we watch the macroeconomic circumstances, what the political parties are doing quite closely, and then react accordingly. But I do not expect a big impact yet. But of course, to be seen and reconsidered once the packages and the actual effects become more visible.

Thanks.

Thank you. We will now take our final question for today. And your final question comes from the line of Oliver Schwarz from Warburg Research. Please go ahead.

Hello, ladies and gentlemen. Thank you for taking my question. It's just one that's remaining. Mr. Fuchs, I heard you talk a lot about the success of, let's say, the lubricant products, also the more traditional products that Fuchs has in its portfolio. I haven't been hearing something about, let's say, the new products, the products that you promoted to make inroads into the EV market, like cooling agents, fluids that specifically go into the EV car type, except for the noise reduction greases you mentioned. I guess with demand for EVs having cooled down a bit in 2024, Perhaps it's now the perfect time if you want to make more inroads into that business via acquisitions. I guess it would be better to do it now than wait for the EV business being hyped again in one or two years' time when demand comes back. Are there any plans to make specifically acquisitions or additional inroads organically into that market? Have you made any, let's say, new customer wins that you can share with us? Anything in that connection might help. Thank you. Thanks, Oliver.

I think that's also a very good question. Once at the end of this year, you will see the whole Fuchs 100 rollout. You will see that one of the where-to-play areas is the new mobility part. So we work full throttle on that. If you go through the various markets, listening to Donald Trump and also Elon Musk is with Tesla involved, but EV is not on the front end in the US market. I don't see it in the next couple of years. In Europe, since the subsidies are away, you see a significant decline in the EV part. We have got our electrolyte joint venture and we wait for some customer conclusions, but You see it's also damped here a little bit. But if you look to China, that's really booming there. We work with the Chinese OEMs together. We have really cool inroads. Our main product is the electric dry fluid. In easy language, I would say the gear oil of the car. And it's all based around the Pentacene technology. We bought it from the double flush technology. So that is for us very important. You won't make large inroads in acquisitions because most of it is new business. On the cooling side, it's also interesting. I can repeat my statement. I think cooling side, you need to be careful. There are some specialties and stuff you can earn margins, but there's also some commodity type business. For us, it's very important, but the main thing is China. And in China, I always say we are in our fourth cycle in China. We started initially German products manufactured in Germany we sold in China, then we manufactured those German products in China, then we manufactured in China products for the Chinese OEMs, and now in the fourth phase we go with the Chinese OEMs outside of China. So soon we will have liaison offices from China in our companies in Hungary, Thailand, South Africa, and Mexico. to go with the China OEMs, especially on the EV part into those countries, but also to cater for the wind market or the underground coal mining equipment. So for us, it's a big deal, but the market is not going as the hype was there two years ago.

Very clear. Thank you very much.

Thank you. I will now hand the call back to Stefan for closing remarks.

Thank you. very sorry but i have to make a little sad announcement to the end of our call and also i'm happy for him it's with tears in my eyes that lutz informed me about a month ago that he will leave us end of september um you know lucy was four and a half years he did an outstanding job for us i'm sure you all like him we would have loved to continue to work with him but there was no way we could hold him because there's also private life behind and he will also move. And therefore, you know, we said we will go with that very transparent. On Monday, we are out, you know, on a search. On Monday, you will also see it on our homepage. And we thought it's adequate to inform you today about it. And I'm sure that one or the other will call Lutz later. We are very sad. But I look forward because the next couple of months I will travel a lot with Lutz.

seeing you and seeing investors and then we have to see but life will continue but we wish Lutz all the best but it's not a farewell today but I only wanted to inform you today yeah thank you Stefan for the work and you should not be worried I'm still around and we will be in touch soon so as the first quarter comes to an end and reporting of the first quarter will be end of April yeah we will be in touch soon and yeah So until then, you may now disconnect. We have come to the end of the call and see you all.