Kion Group Ag Unsp/Adr

Ladies and gentlemen, welcome to the Qion Group's Q2 2025 update call. Today's presenters will be Rob Smith, CEO of Qion Group, and Christian Hahn, CFO of Qion Group. I'm Sergin, the chorus call operator. I would like to remind you that all participants will be in listen-only mode and the conference being recorded. If you would like to ask a question from the webinar, you may click the Q&A button on the left side of your screen and then click the Raise Your Hand button. If you are connected to your phone, please press star followed by one on your telephone keypad. Also, please limit yourselves to two questions only. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Rob Smith. Please go ahead, sir.

Thank you, Sergio. Good afternoon, ladies and gentlemen, and welcome to our update call and webcast on our Q2 results. You can please see the update call presentation on the IR website as we go through the presentation together. I'm going to start with a summary of our second quarter 2025 results, and then Christian will take you through our Q2 financials in detail and reiterate our outlook for 2025. I'll come back and we'll be taking some key takeaways, and then Christian and I look forward to your questions after that. Let's start together on page 3. Q2 was another solid quarter and in line with our expectations. Group order intake was 3.5 billion euros, a 33% increase compared to the prior year, and reflects a record quarter for order intake in supply chain solutions. Revenue was down at the key on level and in both segments due to the subdued demand in new truck and new project business in prior quarters. Adjusted EBIT was 189 million euros, corresponding to an adjusted EBIT margin of 7%. While adjusted EBIT and supply chain solutions continued to improve its profitability, Performance in ITS reflected the expected negative impact of lower volumes. Free cash flow was again positive at 132 million euros. Earnings per share were 72 euro cents, an increase of 38% year on year. I turn you over to Christian now, and he'll take you through the Q2 financials and reiterate our outlook for the full year.

Thank you, Rob. So, Please, everybody, let's go to slide five for the key financials of the ITS segment. Order intake reached 70,000 units in the second quarter, and that is a sequential increase of 7%, a pretty normal seasonal development in the second quarter of the year. Year over year, the increase was 9%, meaning that the growth seen in the first quarter, 25, held its pace. New orders in money terms increased 5% year-on-year, driven by an 8% increase in the new track business, and the service business also showed continued growth at 3%. The order book reflects now ongoing the lead time normalization and its margin qualities in line with our expectations as reflected in our outlook. With this development, the book-to-bill ratio was above 1. Revenue declined by 6% year over year to slightly over 2 billion euros. The 2% growth in service only slightly made up for the expected 13% decline in the new drug business. Remember that in 2024, the new drug business revenue significantly benefited from the tailwind of a high order backlog. Adjusted EBIT at 173 million euros And the corresponding adjusted EBIT margin at 8.6% reflects the expected impact from lower volumes, resulting in reduced fixed cost absorption as well as lower cross margins due to the reduced pricing realized in the second half of 2024 in the new direct business. On page 6, I will now continue with the summary of the key financials for SCS. We had a very strong quarter in order intake, in fact, a record level of more than 1.4 billion euros. In contrast to recent quarters, this significant increase was primarily driven by business solutions, which more than doubled also thanks to the favorable timing of some order signings. The service business continued to grow. This is a very good development, but I would ask you not to extrapolate that number for every quarter going forward. While we may have passed the draft, we are still in a lumpy recovery trajectory and we are likely to see the next quarters below the 1 billion mark again. You will note that the increase in demand was very much driven by the pure play e-commerce vertical, while most of the remaining verticals continue to be impacted by customers' ongoing hesitancy to sign new contracts due to the geopolitical uncertainties. As a result of the high order intake, the order book increased both sequentially and year over year. This year-over-year increase would have shown an even higher growth rate without the adverse FX translation effects of approximately 225 million euros. Overall, revenue increased slightly sequentially and declined year-on-year. The 6% growth in the service business partially made up for the 12% decline in the project business, again, which was impacted by the lower order intake in the past quarters. The adjusted EBIT improved strongly, year-on-year to 42 million euros, with a near doubling of the adjusted EBIT margin to 6%. And that's mainly true to the growth in the service business and the solid projects execution. Now let me quickly run through the key financials for the group on page 7. Order intake, when it fitted from the growth across all businesses, new trucks in ITS, new projects in STS as well as the continued growth in the service business in both segments. The continued lead time normalization in ITS and the FX translation losses in STS led to the year-over-year decline in the order book. Revenue benefited from the growth in the resilient service business in both segments, nearly compensating for the lower ITS new truck and STS business solutions revenue. And adjusted EBIT at €189 million, and the adjusted EBIT margin at 7% was mainly impacted from the lower fixed cost disruption in ITS, which was partially compensated by the strong earnings improvement in SCS. Page 8 then shows the reconciliation from the adjusted EBITDA to group net income. The non-recurring items in the quarter did not include any material expenses for the efficiency programs. With regards to PPA items, remember that the prior year quarter was impacted by the €22 million goodwill impairment for Kion ITS Americas. In the second quarter of 2025, PPA items were back at the usual quarterly level. The net financial expenses improved year over year, mainly due to positive currency effects. This resulted in pre-tax earnings of €131 million in the quarter. The net loss attributable to shareholders increased by 38% to 94 million euros, and that's corresponding to earnings per share of 72 euro cents. The tax expenses of 38 million euros corresponded to a tax rate of 28%, significantly lower than in the prior year quarter. The main driver for the lower tax expenses in the quarter resulted from a positive tax effect relating to prior years. In June 2025, so June this year, the German government resolved to cut the federal corporate income tax rate from the fiscal year 2028 onwards. And that's leading to a revaluation of deferred tax assets. This is expected to lead to a tax gain in the low to middle double-digit million euro amount in the third quarter. This effect, together with the low effective tax rate in the first two quarters of this year, has led us to update our full year 2025 tax indication to between 25% and 30%, from previously 35% to 39%. You will find this information on the housekeeping slide in the appendix of this update call presentation. Now, page 9, let's continue with the free cash flow. Free cash flow in the quarter reached positive €132 million, substantially driven by an improvement in the network and capital in both operating segments. In contrast to the prior two years, where we had a 50 million euro cash out in the fourth quarter for additional pension funding, we are planning to spread the cash amount across three quarters this year. 15 million euro were funded in the second quarter, and additional funding in similar magnitude are earmarked for the third and the fourth quarter. The expenses relating to the efficiency program were not cash effective in the second quarter. They are expected to become cash effective in the second half of this year, and this is included in our full year 2025 free cash flow guidance. Page 10 then shows the development of the net financial debt and our leverage ratios. We had a slight increase in the net debt at the end of the second quarter 2025, but continued to remain below 1 billion euros. This had no impact on the leverage ratios across both net debt definitions compared to the end of March of this year. Our leverage ratios remain slightly lower than the level last seen post our December 2020 capital increase. But again, this time we achieved this improvement entirely through self-help measures. Let me quickly touch on the standard and poor global rating downgrade to BB plus with stable outlook that was published at the end of June. While disappointing, our analysis shows very limited impact on our financing costs and our refinancing ability. The margins agreed with our banks under the revolving credit facilities are driven by margin grids and margins will rise by very low double-digit number of basis points. As you can see in the maturity profile included in the appendix of this presentation, our industrial indebtedness has virtually no maturities until 2028, following the early refinancing of the upcoming bond maturity in September of this year, for which we had issued a new bond back in November of last year. Consequently, the impact on our industrial indebtedness is very limited. Our net financial debt of less than one billion carries fixed coupons for a large part and the variable part is contracted with fixed margins, fluctuating only with our report. Only the currently undrawn revolving credit facility, maturing in 2028, would be impacted by the margin increase in case of utilization and minimally with respect to the commitment piece. The leasing refinancing will be slightly impacted by the variable part of the existing portfolio financed via a revolving credit facility maturing in 2029. For future customer contracts, the slightly increased refinancing costs will be included in our end customer offerings. Overall, we expect a very low single-digit million euro impact on our interest result in 2025 and beyond. We enjoy a very stable banking group and will continue to work very closely with the rating agencies to establish a path back to a consistent investment grade rating over time. Now I'm moving on to slide 12. We had a good start to the year with the Q1 as well as the Q2 performing in line with our expectations. Looking ahead, we note that the economic environment is still characterized by considerable uncertainty. Geopolitical risks and potential negative impacts on our value chains and our markets could materialize from the ongoing trade conflict. Over the past years, we have invested in our production and R&D capacities and into our sales and service networks, particularly in the APEC and Americas regions, to prepare for shifting geopolitical scenarios. We therefore confirm our outlook for fiscal year 2025 for the group and our two operating segments as of today, subject to the condition that there is no significant disruption to our supply chains as a result of trade barriers, especially tariffs and restrictions on access to critical commodities. Slide 13 lays out our guidance as presented with the full year 2024 results. Since I provided a detailed walkthrough of our guidance at the full year 2024 update call at the end of February. I will skip it here in the interest of time. For those of you who are interested in the explanation, please refer to the transcript, which is posted on our investor relations website. I know you are going to ask me anyway, so let me share with you how we are currently thinking about the phasing over the next two quarters. As you know, Q3 is often a weaker margin quarter in ITS, with July and August being holiday months with some seasonality due to summer factory shutdowns, especially in our key market EMEA. I don't think this year will be any different. Q4 is often a stronger margin quarter, and again, this should not be any different this year. But how much stronger is the discussion like to postpone then when we actually present our Q3 results? For STS, as you know, in general, we're looking for a margin improvement every quarter. Since the margin improvement was quite pronounced from the first to the second quarter, maybe the next sequential improvement won't be as strong. And then maybe stronger again in the fourth quarter. Again, let's discuss Q4 when we publish Q3. Obviously, by then, we will have a much better visibility. And with that, Rob, I hand back to you for the key takeaways.