Fuchs SE

Dear ladies and gentlemen, welcome to the half-year results 2026 analyst conference call of Fuchs SE. This conference call will be recorded. As a reminder, all participants will be in listen-only mode. After the presentation, there will be opportunity for the analysts of Fuchs to ask questions. May I now hand over to Andreas Schaller, Head of Investor Relations at Fuchs SE, who will start the meeting today. Please go ahead.

Thank you, Nadia. Good afternoon, ladies and gentlemen. This is Andreas Schaller speaking. On behalf of Fuchs SE, I wish you a very warm welcome to today's conference call on the results of the first half year 2026. We already pre-announced sales and EBIT and the change to guidance for EBIT on Wednesday last week. Today, we will run you through the full set of numbers. With me on the call today is our CEO, Stefan Fuchs, and our CFO, Esma Saglik, and the IR team. As always, Esma and Stefan will run you through the presentation, which is then followed by a Q&A session. All the documents for this call are available on our homepage, and we assume that you have them in front of you. Please be also aware of our disclaimer on page two of our presentation. And now, it's my pleasure to hand over the call to Esma. Please go ahead.

Thank you very much, Andreas. Hello, and also a very warm welcome from myself. I will now walk you through our financial performance for the first half of 2026, starting with a key highlight. Overall, we had a very strong first half year. After a very good start into 2026, our business developed even stronger in the second quarter. Sales reached 2 billion euros. This is an increase of 11% year over year. The main driver was strong organic growth supported by high customer demand. As a consequence, the strong sales growth translated into a strong earnings. EBIT reached €260 million, which is €51 million above last year and an increase of 24%. Our free cash flow before acquisition came in at 61 million. This is below the prior year level of 81 million euros. The main reason is the inflation driven build up of net operating working capital. So in summary, the first half of the year was characterized by strong demand, a clear EBIT improvement, and the cash flow development that reflects the current inflationary environment and higher working capital needs. Now, turning to the next slide, let me briefly comment on the quarterly sales. In Q2, our sales were very strong and reached 1.1 billion. This is 14% above Q1 and 21% above Q2 of last year. The main driver was strong demand. Based on our current assessment, around one third of the growth came from growing our business. Another third came from pre-buying effects. And the remaining part came from customer turning to us because other suppliers were short on raw materials and not capable to deliver. So overall, this development shows two things. First, we have a robust market position and demand for our products as well. And second, our broad sourcing network helps us to supply our customers reliably in the difficult market. Let's now have a closer look to the main drivers behind our sales development in the first half year. Organic growth was clearly the main driver. It contributed around 200 million euros, or 12%. This growth was mainly volume-driven and came from all regions. In the first two months of the year, we saw a normal volume growth at a mid-single-digit level. From March to June, the growth was over-proportionally due to the effects I've already mentioned. Overall, price effects played a rather limited role in the first half. The benefits from lower raw material prices earlier in the year were largely neutralized by the inflationary pressure caused by the Middle East crisis. As a result, price effects were still relatively modest. The impact of the price increases already implemented will come more visible in the second half of the year. External growth contributed €25 million. This number reflects mainly the full consolidation of our former joint venture in Turkey after the closing of the acquisition, which was end of April 2026. Currency effects were negative at around €26 million, or minus 2%. Here, the main burden came from America and Asia Pacific. However, the negative ethics impact declined during the second quarter and even turned into a small tailwind. So, in summary, we can say that our strong top line growth was volume-driven and broad-based. Turning now to the EBIT, The strong sales development translated into a very strong EBIT performance. EBIT in Q2 reached 135 million, an increase of 34% compared to the second quarter of last year. This reflects the strong demand environment and the positive business development across our region. But we should also keep in mind that Q2 last year was relatively weak. especially in America, where the business was affected by uncertainties around the tariffs. Nevertheless, even comparing our Q2 EBIT development with Q1, we were able to improve profitability. EBIT increased by 8% quarter over quarter. And this very good result gives us a strong foundation for the full year 2026. Let me now turn to the KPI summary, starting with the gross margin. Our gross margin remained solid at 34.8%. This is slightly below the Q1 level of 35.1, but broadly in line with the prior year period, which stood at 34.7%. Functional costs increased by 20 million euros. This was mainly driven by higher sales and R&D expenses, as well as one-off effects in other operating incomes and expenses. The positive one-time gain from the sale of land in Australia in Q1 was more than offset by a negative one-off, mainly related to the first-time consolidation of Fuchs Turkey. Selling and R&D expenses were driven by volume growth and reformulation efforts to secure supply. Our EBIT improved significantly, and we reached an EBIT margin of 13%. Compared with 11.6% last year, encouraging is that sales grew by 11%, while functional costs increased by only 5%. This shows that we were able to grow efficiently and convert the strong top line development into a significant improvement in earnings. CapEx increased year over year as well, but we remain in line with our full year guidance. The change in net operating capital was minus 139 million euros. reflecting the strong inflationary-driven build-up. As a result, free cash flow before acquisition was below the prior year level. However, compared to Q1, we were still able to achieve a slight improvement in cash generation. So, the key message is, we achieved strong earning growth and delivered a solid free cash flow despite the headwind of inflation. And now, let us have a look at the regional development, starting with EMEA. Sales in EMEA increased by 11%, driven by strong organic growth. All countries have expanded sales. We saw particular strong contributions from Germany, South Africa, Poland, Italy, and the UK. The growth was mainly volume driven, while price effects were still with lower impact in the first half year. In addition, external growth was supported by the full consolidation of Fuchs 30 years. EBIT increased by 15 million or 14%. Almost all countries were above previous year EBIT level. The EBIT we see here includes an equity income of 3 million euros, which is mainly coming from our joint venture partner in Saudi Arabia. And as you may have seen in our second press release today, this morning, a fire occurred at our production site in Saudi Arabia and caused severe damage to our production system. Fortunately, nobody was injured. That being said, we do not expect any production output from this plant for the remainder of the year. But we are confident that we can secure alternative supply sources and continue serving our customers. So in summary, EMEA delivered a very positive performance so far with broad-based organic growth and a solid earning. Now moving over to Asia Pacific, organic growth was strong at 14%, mainly driven by high customers. China and Australia delivered the highest absolute contribution. At the same time, several smaller countries showed a strong relative growth rate. While currency effects were still negative in the first half of the year, we start to see an improvement. Negative currency effects declined over the past six months and turned slightly positive in the second quarter. From an earnings perspective, Asia-Pacific developed very strong. EBIT increased by 27 million or 42%. Also here, China and Australia were the main drivers. Nevertheless, all other Asian countries had a very good growth rate too. And that said, the EBIT of Asia also includes a €7 million one-off gain from the land sale in Australia, which we already recorded in July. So overall, we can see that Asia-Pacific recorded strong organic growth and a very good yield performance. Let us now turn to North and South America. Sales increased by 7% despite significant negative currency effects. Organic growth was strong at 13% and was mainly driven by North America. Also South America was significantly above the prior year level. Currency effects remained a burden, especially due to the weaker US dollar. However, the negative currency effects declined. Similar trend as we are seeing in Asia. EBIT in America improved significantly compared to prior year. In Q2, EBIT was more than double compared to last year, reflecting a very strong recovery and excellent operating performance. Both North and South America contributed. Overall, the Americas delivered strong top-line growth and a significant improvement in profitability despite continued translational currency action. Now moving over to net operating working capital. Here we see a strong increase to 910 million euros, which is mainly driven by inflationary effects on inventory. As a percentage of annualized sales, net operating working capital was relatively stable at 21.36. The net operating working capital also includes Turkey for the first time, but this is only a smaller part of the increase. Compared with the prior year, the NOWC buildup was significantly higher and had a clear impact on our free cash flow. Nevertheless, it is a key management task for us to reduce NOWC. The increase, especially in Q2, reflects the contribution of inflation, strong sales growth, and the consolidation of our former joint venture in Turkey. Turning now to net liquidity. As already mentioned, we achieved a free cash flow before acquisition of €61 million. This was supported by strong earnings, but also reflects the inflationary build-up of Networking Capital. CapEx in the first half year was below our depreciation level. In the second quarter, we paid 160 million euros in dividends. In addition, we had the cash outflow for the full takeover of our former joint venture in Turkey. Overall, net liquidity declined from 151 million euros at the end of 2025 to €13 million at the end of June. Considering the dividend payment, the acquisition and the inflationary environment, this is still a solid result. Before turning to the raw material development and outlook, let me briefly summarize the first half year. We had a very strong first half year in 2026. Demand was high and we were able to support our customers thanks to our broad global sourcing. We successfully expanded our business and at the same time part of the growth was temporary, driven by pre-buying and by additional demand from customers whose other suppliers were short on volume. We achieved the highest EBIT ever recorded in the first half year. This gives us a solid base for the rest of the year. We also generated a solid free cash flow considering the significant inflationary effects on net operating working capital. All in all, we once again proven our resilience in a volatile market environment and demonstrated We are following the developments in the Middle East closely. A few weeks ago, there seemed to be some relaxation in the market with crude prices coming down. But the situation remains dynamic, and many supply routes in the Middle East are still blocked. In addition, several refineries and production units in the Middle East are still not operational. This creates shortages, especially in base oil group III and PAO. Thanks to our broad supply sourcing and our local-to-local sourcing strategy, we were able to secure enough raw material in the first half year. This allowed us to serve our existing customers We have also managed raw material cost inflation effectively so far. We have already implemented several rounds of price increases. And we have communicated transparently with our customers. But giving a prediction regarding further development to raw material costs is currently difficult. We will continue to monitor the situation in the Middle East closely in order to remain agile, both on the sourcing side and on our pricing side. And we know even if the conflict were to end in the next couple of weeks, the supply routes opened again We do not expect the supply situation to normalize before mid-2027. And our goal is clear. We aim to compensate the cost increases with price increases. Moving to our outlook. First, it is important to say that the strong earnings development in the first half year of 2026 cannot simply be extrapolated. Part of the volume growth was driven by pre-buying and this will likely revert in the second half of the year. We also consider a part of the additional demand from customers with supply constraints to be temporary. At the same time, the full impact of cost inflation and price increases will only become visible in the second half of 2026. Based on the positive development in the first half year, but also taking into account the uncertainty of the market, we are updating our outlook for 2026 as follows. For EBIT, we now expect a range of 460 to 480 million euros. This is an increase compared to our previous guidance, which was around 450 million. As a consequence, for our SEA, we now expect a moderate improvement above the prior year. This reflects the higher earning expectations, even though capital employed is also increasing. For sales, we continue to expect a figure significantly above 3.7 billion This remains unchanged compared to our Q1 output. Free cash flow before acquisition is still expected to be significantly below €270 million. This is also unchanged compared with our Q1 output and mainly reflects the strong increase in net operating working capital due to raw material cost inflation and higher sales. So, in summary, we managed the challenges around availability and inflation very well in the first half year. But visibility remains limited. And the supply situation is still very dynamic as the conflict is taking unpredictable turns. As we did during the last week's month, we will watch demand development very carefully. and we will continue our transparent communication with our customers regarding the cost development and the necessary price adjustment. We are confident that we will manage the situation well as we did in 2021 and 2022. And with that, I am at the end of my presentation and will hand over to Stefan.