Kion Group Ag Unsp/Adr

Good afternoon, ladies and gentlemen, and welcome to our update call and webcast on the fourth quarter in full year results in 2024. You can find our update call presentation on the IR website. I'm going to start with a summary on our full year 2024 results, and I'll give you a strategic update and a few words on our exciting teamwork and collaboration with NVIDIA and Accenture. Then Christian's going to take you through the detailed Q4 financials as well as our outlook for 2025. I'll be back with the key takeaways and we'll open the line for your questions and look forward to that. So starting on page three together, group order intake was 10.3 billion euros, representing a 5% decline compared to the prior year. and reflects the subdued markets in both operating segments during 2024. Revenue was a record at 11.5 billion euros. Adjusted EBIT increased 16% to the record level of 917 million euros, with the adjusted EBIT margin improving 110 basis points to be 8% in the full year 2024. The improvement was driven by improvements in both operating segments. Free cash flow was 702 million euros, slightly below last year, but exceeded our capital market expectations. The improvement was driven by the strong EBIT and the substantial improvements we made in net working capital. Earnings per share were 2 euros and 75 cents, an increase of 18%. In line with the increased earnings per share, We will be proposing at the AGM on 27 May a $0.82 dividend, leaving the payout ratio unchanged at approximately 30%. We have made very good progress in both our operating segments and on the Keon level since the difficult year of 2022, which you'll recall was impacted by high inflation and severe supply chain disruptions. Our operational and commercial agility measures and our strategic focus on innovation, digitalization, and artificial intelligence have proven to be successful, and 2024 was a strong year for Kion. I'd like to give you an update on the next steps of our Kion strategy on pages four and five. The world is moving fast, and so are our markets, and we're at a pivotal moment in Kion's history. we're creating a company that is even more agile and resilient for the benefit of all of our stakeholders. And to prepare ourselves now for our next, we worked hard on designing our playing to win strategy. It's our vision that the Keyon Group is the supply chain solutions company. Our people's passion is innovating, automating, and orchestrating solutions for our customer supply chains. Keyon brands keep the world moving. We bring this vision to life with our playing to win strategy. We're making automation easily accessible and scalable from partial to full lights out automation. We're providing intelligent industrial trucks, automation solutions, software and services for smooth material flows. On page five, you'll see in our playing to win strategy, there are three key plays. To our commitment to innovation and growth, we're enhancing our business in both operating segments by offering even more customer-centric solutions and regional expansion. Furthermore, we're strengthening our presence in the growing automation market by decisively driving innovation technologies and solutions in that automation market. In product development, we're strengthening cross-brand collaboration, particularly in areas like automated forklifts, and autonomous mobile robotics. Sustainable performance underlines our commitment to consistently enhancing profitability and competitiveness, paving the way for our future investments. The organizational development plays are dedicated to the further activation of group-wide management principles ingrained in our business processes and our HR processes to support our strategic goals. We embrace an agile mindset, working quickly and with focus to find pragmatic and creative solutions. Playing to win, Kian is pushing the boundaries of our industry, strengthening our leadership role, and leveraging AI-driven systems as an integral part of our strategy to optimize our customer supply chains and increase their productivity. On page six, I'd like to unpack a bit more. the high-intensity work we're doing with NVIDIA and Accenture. We're the first in industry to adopt NVIDIA's physical AI, creating a vision for warehouses that are part of a smart, agile system that evolve with the world around them and can handle nearly any supply chain challenge. At the CES, the computer electronics show in Las Vegas in January this year, we announced our first results. Kion defines ideal setups for new warehouses and enhances existing facilities with NVIDIA's Omniverse, which is a platform for building 3D applications and services, as you can see pictured in this slide. Omniverse is NVIDIA's blueprint for large-scale digital twins. This includes digital twins powered by physical AI, AI models that embody principles and qualities of the physical world to improve the performance of intelligent warehouses that operate with automated forklifts, smart cameras, and the very latest automation and robotic solutions. Look, in today's world, in global trade, in the world's supply chains, and in all the world's logistics centers, conditions are constantly changing. And companies that leverage physical AI can design, simulate, and optimize the real options in their supply chains. Digital twins do this in real time, and they serve as the control tower and the blueprint for their physical twin counterparts. We'll show you how that looks at the end of the call. This capability saves huge amounts of time, capex, and operating costs, and gives the company the ability to constantly adapt to the changing conditions in their supply chains. So now let's go through the financials. I'm going to hand it to Christian. He'll take you through the Q4 full year and the outlook for 2025. Christian.

Thank you, Rob. So let's go to slide eight for the key financials for the ITS segment. Water intake showed a strong seasonally driven sequential rebound to 70,000 units and a 4% increase compared to the same quarter in 2023. New orders in money terms increased 22% sequentially and 1% year-on-year. The service business continued while new truck order intake was flat year-over-year. Revenue declined by 1% year over year to 2.3 billion euros, as the 4% growth in the service business did not compensate for the 4% decline in the new truck business. Sequentially, revenue increased by 15%, making Q4 the strongest quarter of the year, thanks to high shipments. Similarly, adjusted EBIT at €245 million also made Q4 the strongest quarter of the year, once again highlighting the significance of operating leverage in the ITS business model. At 10.6%, the adjusted EBIT margins solidly remained in the double-digit territory. I continue on page 9, which summarizes the key financials for SCS. Overall, Order intake continues to be impacted by customers' ongoing hesitancy to sign new contracts due to the macro and political uncertainty and expectations on further interest rate cuts. Q4 with an order intake of 624 million euros once again reflected this hesitation. Business solutions orders were down 28% compared to prior year quarter. The service business declined by 8% compared to a reasonably strong prior quarter and prior year quarter. Activity from the pure play e-commerce vertical was noticeable in this quarter with a share of 57%. The decline in the order book reflects the subdued order intake in the past quarters, as well as further progress in completing the legacy projects. As we have now completed the vast majority of those legacy projects, the completion of the remaining legacy projects should have no meaningful impact on the order book going forward. Overall, revenue remained close to the prior year and above prior quarter levels. The service business continued to grow strongly at 12% year over year, while the project business declined by 7% as expected. reflecting the lower order intake and the high share of orders with long lead times throughout last year. With improved project execution, continued progress in working through the legacy projects, and further benefits from measures to improve our cost base, the adjusted EBIT improved to €42 million, with the corresponding adjusted EBIT margin rising to 5.4%. Let's quickly run through the key financials for the group on page 10. Order intake reflects the usual seasonal uptick to the prior year level in ITS and continued customer hesitancy to sign new contracts in SCS. Lead time normalization in ITS and subdued demand in past quarters in SCS led to the decrease in the order book both sequentially as well as year over year. Revenue benefited from the growth in the resilient service business in both segments, which almost entirely compensated for the softer ITS new truck business and lower SCS business solutions revenue. Adjusted EBIT at 250 million euro and the adjusted EBIT margin at 8.2% enabled Kihon Group to finish the year with a strong quarter. Page 11. shows the reconciliation from adjusted EBITDA to group net income. Non-recurring items amounted to minus 16 million euros and included expenses for measures to adjust our cost base in STS and the small M&A project in ITS, where we have acquired the remaining shares in a distributor. PPA items were at the usually quarterly level. Net financial expenses dropped back to the level seen in the first two quarters of the year, remember, that the steep increase in Q3 was almost entirely attributable to the fair value of interest derivatives, which reacted to the changes in interest rates. These effects reversed in Q4. This resulted in pre-tax earnings of 171 million euros in the quarter. Following a tax rate of 34%, Net income attributable to the shareholders amounted to 111 million euros in the quarter, corresponding to earnings per share of 85 euro cents. Now let's continue with the free cash flow statement on page 12. Free cash flow in the quarter reached positive 271 million euros due to the strong EBIT and a substantial improvement in net working capital, which was mainly driven by favorable developments in inventories and contract assets, partially offset by a decrease in trade payables. Positive free cash flow led to a 202 million euro decrease in net debt. Page 13 then shows the development of net financial debt and our leverage ratios. As mentioned on the previous slide, the positive free cash flow led to a €202 million decrease in the net financial debt to less than €1 billion. Accordingly, the leverage ratio across both net debt definitions improved by 0.1 turns. Our leverage ratios are now even slightly lower than the level last seen post our December 2020 capital increase, but this time we achieved improvement entirely through self-help measures. We continue to remain committed to improving leverage matrix further to defend our two investment grid ratings as we believe they are supportive to our business model. Now on slide 15, talk about our guidance and I'll start with ITS. As communicated throughout 2024, we continued to make progress in reducing the order book and normalizing the lead times. The margin quality of the order book reflects the ongoing shifts in new orders towards APEC and the entry-level warehouse equipment in recent quarters, impacting both revenue and adjusted EBIT. Based on this and our industrial truck market expectations for 2025, which I will discuss on the next slide, we believe revenue in ITS could decline 6% on the lower end and remain flat on the upper end of our expectations and reach between 8.1 and 8.6 billion euros. The service business is expected to continue to grow. As we outlined in the call earlier this month, following our announcement of the efficiency program, there are several headwinds that are expected to impact adjusted EBIT in ITS in 2025. These include the non-reoccurrence of the tailwind from order backlog normalization and its impact on expected revenue development. These also include the less favorable product and geography mix as seen in the order intake of the past quarters. And these include intensifying competition, all of which are expected to drive the adjusted EBIT down to between 680 and 780 million euros, which is a decline of 26% on the lower end and 15% on the upper end. The dip below the 10% adjusted EBIT margin threshold is expected to be temporary, as the full impact of the cost savings from the efficiency program is expected from 2026 onwards. Accordingly, 2025 could be considered a look-through year for the ITS segment and therefore also for Kion Group. With respect to phasing, it is quite possible that the IDS adjusted EBIT margin will start the financial year 2025 on the relatively higher margin than in the following quarters. Let's now turn to SCS. Based on the subdued order intake in 2024, As well as the fact that the market recovery will take time to benefit revenue meaningfully, given the longer-term nature of the project business, we expect revenue in STS between 2.8 and 3.1 billion euros, which is a 5% decline on the lower end and a 5% increase on the upper end. We expect further improvement in adjusted EBIT in STS to between 140 and 200 million euros, which is an increase of 24% on the lower end and 77% on the upper end. This improved result of legacy projects in the backlog, the continued growth business, the improved project execution, as well as the benefits from measures to adjust our cost base. In terms of phasing, SDS should show a similar progression in the financial year 2025 as in 2024, with the adjusted EBIT margin improving from quarter to quarter. At Kihon Group level, we expect revenue between 10.9 and 11.7 billion euros, representing a 5% decline at the lower end and a 2% increase at the upper end. Group-adjusted EBIT is expected between 720 and 870 million euros or between 21% and 5% lower than in 2024. Free cash flow between 400 and 550 million euros is expected to be substantially below the excellent prior year level due to the cash out from the efficiency program, most likely in the second half of this year. Excluding the cash out from the efficiency program, free cash flow is expected to be substantially positively impacted by further net working capital improvements. And lastly, ROSI is expected between 7 and 8.4%. As always, you will find a slide on the housekeeping items in the appendix of this presentation. Slide 16 now outlines some of the assumptions that have gone into the outlook for our key KPIs in the housekeeping items. First of all, let's talk about our 2025 view of our respective markets. In terms of order intake in units, we expect the industrial truck market to grow slightly year-on-year across all regions, which translates into a slowdown of growth in EMEA, a stable growth rate in APEC compared to our 2024 expectations. Remember, WIT statistics are published with a three-month time lag, so we are still waiting for Q4 data. In Americas, market recovery is expected. In value terms, the global industrial truck market growth is expected below unit growth, reflecting the ongoing product mix shifts. With regard to the development of the market for warehouse automation solutions, we have decided to switch from a revenue-based to an order intake-based approach starting in the 2025 reporting year. The order intake provides a more precise insight into the current demand situation. Due to the long durations typically of the project business, revenue is often realized with a significant delay after the order has been awarded. So now, based on order intake, we expect slight growth in the project business in 2025. The advancing automation trend and further falling capital costs is expected to have a positive impact on investment decisions in warehouse automation solutions. is anticipated to mainly occur in the Americas and EMEA regions with a marginal decline expected for APEC. I'd also like to give you a quick recap on the efficiency program announced earlier this month. We have a strong commitment to our adjusted EBIT margin target of more than 10% by the end of the current strategic planning period, which is the end of the fiscal year 2027. This target applies to both operating segments as well as to Keyon Group as a whole. We have made very good progress in both operating segments and Keyon Group since the difficult year of 2022, which was impacted by high inflation and severe supply chain disruptions. In order to strengthen this resilience and maintain the headroom for investments to ensure our future and strengthen our competitiveness, we must manage our cost base. And this requires structural measures that are sustainable. In this context, the Executive Board of Kion resolved an efficiency program with the aim to achieve sustainable cost savings of around 140 to 160 million euro per year, fully effective in the 2026 financial year. By implementing the efficiency program, Kuhn is addressing several developments in the macroeconomic environments and in its markets. European economies are struggling to gain momentum. This affects key customer industries in the ITS segments, where Chinese competition has been improving their market position in the aftermath of the recent pandemics. The implementation of the cost-saving measures is expected to lead to one-off expenses in the amount of approximately 240 to 260 million in the first quarter of 2025. Most of that amount is also expected to be cash effective in the second half of the fiscal year 2025. With that, I hand back to Rob for our key takeaways.

Thank you, Christian. Let's go to page 17 together for our key takeaways. Geon finished financial year 2024 with consistent operating performance and strong financial results. Adjusted EBIT and adjusted EBIT margins improving in both our operating segments. The group outlook for 2025 reflects, on one hand, a temporary decline in adjusted EBIT and adjusted EBIT margins for the ITS segment due to the non-reoccurrence of the tailwind from order backlog normalization. and its impact on expected revenue development. The less favorable product and geography mix is seen in order intake of past quarters, as well as signs of intensifying competition. The dip below the 10% threshold is expected to be temporary as the full impact of the cost savings from our implemented efficiency is expected from 2026 onwards. Accordingly, 2025 can be considered a look-through year for the ITS segment. On the other hand, the supply chain solutions segment will continue to improve its adjusted EBIT and adjusted EBIT margins in 2025 as we continue to finish the legacy backlog and reap the benefits of the improved project execution, project management processes, and continue to grow in the service business as well as measures to improve our SCS cost base. With our recently launched efficiency program and our playing to win strategy, KION is well on track to bring KION and both operating segments to more than 10% adjusted EBIT margin profitability by the end of our current strategic planning period. This concludes our presentation. Thank you for your interest so far. We're looking forward to taking your questions. Morris, I'll make you a deal. If you go now to open the Q&A line, you've got to save five minutes at the end of the call so we can show the video we'd like to show. If you do that, Morris, we're going to open the line for Q&A right now, please.