Rational Ag Lndsberg

Dear ladies and gentlemen, I'm delighted that you have dialed in into this call and a very warm welcome from my side. My name is Stefan Arnold and I'm joined by my colleagues Nicole Engelhardt, Tobias Stadler and of course our CEO Peter Stadelmann and CFO Jörg Walter. Before we start, as always, a few hints at the very beginning. All participants remain muted during the call. After the presentation, we will go directly over to the Q&A session. Our colleague Nicole will read out the questions that you sent us via email, and your questions will then be answered by Peter and Jörg. Thanks to all of those who sent the questions in advance. This makes, of course, our life a little bit easier, and we hope that the answers will be more helpful for you. If we already gave the answer to one of the questions or to more of the questions during the presentation, or if we already had a comparable question, we then might not repeat the question later on. However, we will make sure that all questions will be answered before we close the call. So this call will be recorded and we will send a YouTube link to all participants after the call. We kindly ask you to not share this link outside your organization. And with this, I hand over to Peter.

Thank you, Stefan. Good afternoon, ladies and gentlemen. Let's start with the big elephant in the room, U.S. tariffs. First, a quick reminder on our production sites. We produce 100% of our cooking systems in Europe. The iCombi is produced in Landsberg am Lech, Germany, and the iVario is produced in Wittenheim, France. As we are an assembly-focused company, we heavily rely on our suppliers. More than 95% of purchasing volume comes from European suppliers. Non-European suppliers are located in China, Turkey and Switzerland. You might also know that we currently building a factory in China, which is expected to start production end of this year. As we will focus only on China with this in China for China combi steamer, we do not expect an impact from the tariff discussion. Let me add that there is no substantial production capacity of combi ovens in the United States, so all manufacturers will be evenly hit by tariffs. The small domestic manufacturers are hit by tariffs on the other side on stainless steel and imported components. What is currently affected? Since early April, we face an additional 10% tariff on our export to the United States. This affects roughly 20% of total sales. Before President Trump, in his second time in the office, enacted the latest tariffs, our cooking systems were not affected by tariffs at all in the USA. To mathematically compensate the absolute contribution, an increase of prices of roughly 7% would be needed to compensate a 10% tariff. That's all said that is Paribus. We are of course monitoring the situation very closely, but we will be very careful and observant what the tariff discussion between the USA and the European Union will come up with and how market players will react on that. Giving an outlook on the future development is impossible. It seems like there are new developments daily. These announcements can occur at short notice. As of today, it seems like the reciprocal tariffs are paused for at least 90 days. We expect to see discussions and negotiations between the USA and the European Union in this period. What will happen in early July is not to be predicted. Our customers and ourselves, we do not panic. We are not seeing a slump in incoming orders, nor are we seeing high pre-orders in Q1. Some customers might be a little bit cautious, but we are as well. Our salespeople keep doing what they always do. visiting potential customers, running Rational Life cooking shows and inform potential customers on the many, many benefits of our cooking solutions. Let's look at one of those customers. It is PC Tank at the German border to Luxembourg on the Luxembourg side. They run service stations on a very high level. My colleague explained it to me. If you go to the service area in Germany to eat, you expect not a high quality in food, but you eat there because you have to eat. Here at PC Tank, it's different. People come to those service stations just for eating, not just to get their fuel. They so far run roughly 10 shops and they used the iCombi Pro before. In some units, they also run the iVario. They were among the first customers to switch to the iHexagon. They do all the baking, especially in the morning, and then they use the iHexagon for lunch and dinner times for a la carte production. The customer is totally satisfied and you can read on their heads gourmet rapide. So that means speed matters. And I think that perfectly describes the right point of using the eye hexagon. Let's switch to figures, facts and data. Let's start with the sales performance in 2024. we were at €1,194,000,000 in total. That was an increase by 6% or almost €70 million. If we look into 2025, Q1 is in line with our guidance. We continue to grow. Sales revenues increased by 3% to €295 million. In normal years, the distribution of quarterly follows a certain pattern. Sales in the first quarter account for roughly 23% of annual sales, while sales in the fourth quarter account for around 27%. We have seen a trend towards this seasonality in the last year, but it was still a little bit flatter than it used to be in the past. We are convinced that the trend towards the pre-crisis seasonality is likely to continue. Let's have a look at the business development by region. Europe, excluding Germany and North America, are our two largest sales regions. Together, they account for 65% of sales. And these two regions have had significant impact on the group's sales development. North America has been our number one growth engine in recent years and has achieved high double-digit growth rates due to the large free market potential. Also in Q1 2025, sales increased by 11%. It is important to outline that sales numbers of our most Most of our competitors are not reaching this level, so we are able to expand our already high market share. Sales growth of 7% in Europe was driven by good sales in the United Kingdom and Italy, the two of the largest European markets. However, the Eastern European markets of Poland, the Czech Republic, Hungary and Turkey also achieved double-digit growth. These markets also offer good growth opportunities in the future due to their lower market penetration. With sales of €30 million, Germany remained at a stable level and grew slightly by 2%. In the Asia region, we had a decline in sales. The prior year quarter in Asia was still positively influenced by strong business in the region's two largest markets, China and Japan, and in China by a large one-off additional order from a chain customer. The positive sales trends in India and Korea was unable to offset these effects. We continue to assess the potential of the Asia region as very promising. With that, I'm glad to hand over to Jörg.

Yes, thank you very much, Peter. I start with the development of our product groups. First, on the right side, the product group of Ivario. Ivario continues the growth path with a sales increase of 10%. Especially the business in Americas was growing around 35% and the rest of the world was able to double in Q1 2025. So the development of these regions was particularly well and helped to support the 10% growth of the Ivario. And on the left side, you see the development of the iCombi. And it's clear that due to the size of the iCombi business, it mainly represents the group. And the iCombi was growing by 2% and the regional development was a bit the same like Peter just commented for the group as a whole. Let's look at the result. Earnings before interest in Texas, the EBIT increased by 1% to €72 million. The EBIT margin stood at 24.4%. And we have here the similar effect that Peter was just mentioning by the quarterly sales development. Similar to the seasonality, the sales seasonality, also our EBIT margin has a special seasonality with the highest margin the last quarter. That's why overall we are satisfied with EBIT and the EBIT margin of 24.4% for the first quarter and it's in line with our guidance for the full year. Looking at the P&L in more detail shows that in addition to the sales growth of 3%, the main driver of the good earnings development was the improved cross-profit margin of 59.2% compared to previous years that was a plus of 0.7 percentage points. The cross-margin was positively impacted by a favorable product mix and a strong demand from regions with a higher priced level. Looking at the operating costs, they rose faster than the sales by 10% to 105 million euros. We recorded the highest increase in R&D costs, where the increase was overproportionately by 30%, and therefore we continue to invest in the future of Rational, especially hirings in the software sector, so for software specialists, is a main driver for this strong cost increase. And also it's important to consider that in Q1 2024, we are capitalizing 1 million euros of R&D costs. So if we take that effect out, the increased R&D expense was at a level of around 20%. Also very important for us is the cost investment into sales and service. Here we increased our headcount compared to the year ago by 6%, and this is the main driver for the cost increase by 8%. As a result, we see a good performance also in our sales activities. which again, as always, was and is an important pre-leading indicator for the business development of the coming months. And then lastly, looking at the currency result, we have also, especially when we compare to the previous year, a positive effect of 3 million euros. And this was also an important factor to offsetting the higher OPEX and increase the absolute EBIT over the last year. Well, looking at the balance sheet, we are very solid. You all know the numbers, so there is no change in Q1. We have an equity ratio now of 82% and a liquidity ratio of 45%. We are very, very robust here. And these two KPIs speak for themselves. There is nothing really to add in Q1. And then we come already finally to our sales and earnings forecast for the current year. Overall, we expect 2025 to be another year of growth for us. We expect our long-term growth trend to continue in the mid to high single-digit percentage range. And due to the last The latest economic development in the U.S., in Europe, and also in China, we are currently consider sales and revenue growth in the mid single-digit percentage range for 2025 to be realistic. The raw material and logistic prices stabilized last year, resulting in a higher cross-margin. Current signs indicate that prices will remain at the current level. At the same time, we have lowered our selling prices for most of our care products as of January 1st, 2025. And this is one of the reasons why we are expecting a slightly lower cross margin for the full year 2025 than in 2024. And also in 2025, we will continue to considerably increase some of our operating costs and critical questions, the development of other costs. We saw that in Q1 already, so we are planning overproportional increase in our sales to continue to win more customers and increase in our customer proximity. And we will also continue to build up our production in China. And then on the other hand, we will keep our cost that are not related to sales or R&D at a stable level. Overall, we expect the group's operating cost increase somewhat more than the consolidated sales revenue. And as a result of all these factors mentioned before, we expect an EBIT margin of around 26% for the current year. So we are at the end of the presentation and I'm handing over to Nicole for the questions.

Thank you very much, Jörg. Yes, we got quite a few questions and I will start with you, Peter. What is the actual outlook for the gastronomy industry in your markets?

That's, I think, different view from market to market. We might have a release of VAT in Germany whenever we got a new government. that might help a little bit in Germany. All over, we think that out-of-home food business will stay strong and is less cyclical than other industries.

Has the volatile US customs policy affected customer behavior in North America in any way? And how are your competitors reacting to the US tariff policy?

Yes, we still see US key accounts to be more careful while the street business is running very well. So again, the strength of Rational is to have thousands of small individual customers where we are dealing with and that's again showing as being a very good advantage. An industry survey of an US-based analyst showed price increases in Q1 in our industry even ahead of tariffs. So that might, of course, a little bit dampen the demand.

Does the US tariff policy jeopardize the stability of your supply chain or does it affect your cost position?

No, our supply chain is European. 75% of our tier 1 suppliers are even located in Germany. And as I said, non-European suppliers only account for less than 5% of the purchasing volume.

Given specific steel tariffs, currently 25%, is there a possibility for you to launch and ramp production of spare parts in the US? And how much time would a Greenfield launch for a site producing ovens require and how would that differ to a site producing spare parts?

Yes, we do not produce service parts, but source them with long standing suppliers. So to set up a production plant for service parts is not an option. Lead time for setting up a new production plant for combi ovens would take somewhere between two to three years.

Thank you, Peter. And I have a couple of questions for you, New York. How should we think about average price impact of a 10 and 20% tariff if you pass price increases on fully to customers? And what would be the impact on the gross listed price versus the net of rebate?

Yeah, we mentioned that in the presentation in the beginning to whether a 10% import duties, we need to increase, we would need to have a price increase of 70%, 7%, and for 20% tariffs, it's the double. Regarding the question of list price and rebated price, we have not made up our mind how we would effectively act in the market. We would rather see what our competitors do and then decide on list price increase versus, let's say, a special pricing for tariffs.

If you fully absorb the tariff impact, how much can you realistically offset via efficiency measures versus what would be the gross margin hit at 10% tariffs and at 20% tariffs?

It's a little bit similar to the question we just had before. So for us, it's not possible really to weather or to offset by efficiency measures that affect. And therefore, also, we will not fully absorb the tariffs. 10% tariffs means around 20 million euros of tariffs in absolute value on a 12-month basis.

Is there any pull-forward demand in the US in Q1 pre-tariffs? And how does that compare to the last time you raised your prices?

We don't see any significant pull-forward effects in Q1. given the fact that Mr. Trump announced his liberation day was in the beginning of April, so it was not clear the amount and the magnitude that was not, let's say, known in Q1. And also when we look at the last year when we had announcing prices, we really saw a very hike, and we did not expect or we did not see that in Q1 at all.

Which competitors are you seeing increasing prices pre-tariffs?

We had a study on that, but this study that does not disclose single manufacturers, but it was just a general statement that the industry is increasing prices ahead of the tariff, well, clarity in tariffs.

Are there any more restrictions from the geopolitical situation?

No, we don't see any changes from that side.

Okay, thank you, Peter. Can you give us an update on iHexagon?

Yes, we are happy to see more customer success stories of the iHexagon. All existing customers are very happy and satisfied with the iHexagon. We are satisfied with the recent order intake and sales development. Please note that we will not disclose numbers of units sold just for competitive reasons.

And could you give us an update on your activity in China?

Yes, the project is running according to plan. We are already in the field tests of the first units. Start of production is expected to be end of 2025 and start of sales is expected in Q1 2026.

Okay, the next question is rather long. You mentioned that you expect a resumption of typical sales system seasonality patterns which were not applying to the past two years. How does the Q125 sales performance fit within the anticipated seasonality and your sales growth guidance? And should we assume that Q125 revenues represent the typical 22 to 23% of fiscal year sales?

So I would first correct that we had not a normal seasonality now since 2020. So with the pandemic and then the supply shortages, that was out of former range, I would say. The five-year average pre-COVID showed that Q1 sales were around 22.5% of total sales. while Q4 accounted for around 28% of total sales. Q2 and Q3 are usually between 24% and 25% of yearly sales. The 10-year pre-COVID average showed an even higher seasonality, with Q1 accounting for around 22% of sales. So we expect to further go into the direction of normal seasonality again.

How is the demand now, especially after the Liberation Day? How does the performance vary by region since April?

We currently see the 10% tariff already effective. For now, we did not increase list prices, as said, and as written in my letter to the shareholders, April confirmed our assessment that we have returned to normal seasonality and the development published in our Q1 figures were also confirmed in April.

Do you see demand in your main sales regions picking up or weakening in the current second quarter?

As previously mentioned, the development published in our Q1 figures were also confirmed in April.

Okay, thank you. A couple more questions for you, Jörg. North America developed strongly in Q1. Are there any indications on pre-buys and how are you thinking about building inventories in U.S. pre-tariffs?

Yeah, we talked about that, that we have not seen any large pre-orders and also what we have not seen that any customer were canceling their orders. So on both sides, no big development. When we look at our US inventories, they are slightly up against the previous year and this has more to do with that we are successful in the US market and that with the increased volume also our stock level is on a higher level. We have not on purpose increased the local stock level. That was just not possible for us, especially with the shipping time of six weeks. There is not a lot possible to do.

Which countries in Europe performed especially well to reach a 7% sales increase?

The large markets, UK, Italy, were very good, but also Benelux and Eastern Europe, Southeastern Europe, the countries like Poland, Greece or Turkey, they all performed strongly.

Even considering the high base in Q1 24 in Asia, that region looked a bit weak in Q1 25. What is behind this?

China and Japan, they are the biggest markets in Asia. And together, these two countries account for around 70% to 75% of the sales in the region. China was positively impacted by this one-off big key account or was negative, well, in 2024, so in last year. When we look at the street business in China in Q1 2025, we see that this is developing positively. And this positive effect was just overshadowed from this one-time effect from this key account. And the same is true in Japan. There we have our own sales subsidiary, and also we have OEM, an OEM customer. And this is also we see a big deviation of this OEM. customer from this year to last year. But when we look at our own operations, we have a stable development.

What is the growth of the iVario sales in Europe in Q1 2025?

Europe, including Germany, was around 5% up against previous year.

Which percentage of group sales did you realize in the non-equipment segment in Q1 2025?

The non-unit business represented 32% of total sales in Q1.

Which sales increase did you realize in Q1 2025 in the non-equipment business?

The non-equipment business was growing by around 5%.

Thank you. A couple of questions for Jürgen and Peter. To what extent was the increase in sales in Q1 determined by volume and price effects?

Price effects were very low and not significant. Volume and mix effects were the major growth drivers, each contributing around 40% of growth.

Overall, the FX impact on Q125 sales was neutral. What would you expect for the coming quarters and of all the remainder of the year? How does that fit into your outlook for mid single-digit percentage sales revenue growth for fiscal year 2025?

FX impact in Q1 was slightly positive. We currently see a somewhat lower US dollar. We hedge cash flow everywhere sensible. and we currently do not expect a very big effect coming from fx for full year 25. how influenced are your sales revenue by calendar effects such as missing or extra working days was there any such effect observed in q1 2025 no there is no no big impact easter was in q1 last year it was in q2 this year but we would assume that there is no significant effect of such calendar effects.

And what is your outlook for the markets in North America, Latin America, Asia and Europe?

In general, we expect to continue the Q1 2025 developments. The previous year effect from Asia will soften throughout the full year.

Thank you, Peter. A couple more questions for you, Jörg. Grass margin developed strongly in the year. Were there other factors beyond product mix that helped, for example, production volumes?

Well, the good sales development, we grew by 3% in sales, was combined with a stable cost base. So, therefore, the cogs were flattened a bit and just slightly above the previous year.

And what is your outlook for the input cost for the remaining eight months of 2025?

We expect stable input costs. The LOA surcharge is forecasted to be on a similar level and maybe slightly lower than in Q1 2025.

Which is the new level of R&D cost in the future?

We expect R&D costs to be in a range between 5% to 6% of sales.

Your R&D spending appears very high, plus 21% year-on-year, excluding the capitalization of development costs. What is behind this strong increase in Q125, and what should we expect for the remainder of the year?

Yes, on one hand, we hired software specialists that will make sure that we are able to drive digitization and the digital offerings. On the other hand, we closely follow the iHexagon, the IKEA auto-dose system in the first year in the markets. And we expect for the remainder of the year that we are more or less on, we keep the R&D costs on that level. So the growth against previous year will level out a little bit, but it will not go down.

Operating costs are high on the first Q25. given a plan to increase sales and R&D. What's your strategy in the coming quarters? Will EBIT margin likely to be closer to the lower end of guidance of 26% plus minus 100 basis points in 2025?

Yes, the operating costs are usually quite stable throughout the year, so there are not so much fluctuation. So while the sales revenue are normally stronger towards the last quarter, that means also that the margins will become higher in the last quarters. And as we are slightly below the previous year, and we confirm the margin guidance for the full year, we would say that it's too early now to make the position within the guidance range to be more specific on the single quarters. But as we said, for the full year, we keep our guidance at 26% EBIT margin.

How should we think about the tax rate for fiscal year 2025 after you showed a 24% tax rate in Q1 2025?

Yes, for the full year, we are expecting also 24% tax rate. And long term, it's difficult to say. It's all depending on legislation, tax legislation. But we will rather calculate also long term with this 24%, maybe a bit higher.

And what impact did the reduction in cleaner prices have on the EBIT margin?

There is no major effect coming from the price reduction of the cleaners yet.

Thank you. A couple more questions for you, Peter. In the letter to the shareholders, you indicated that April orders further confirmed the trends you expected for this year. For example, it means return to normal seasonality with gradually increasing order sales as the year progresses. Could you please elaborate a bit by region of the order developments in April?

No, I'm sorry. We do not provide further insights into Q2 than what we said in the letters to the shareholders.

And could you please explain the reasons for the increase in inventories?

Build up inventory levels in the overseas markets due to higher sales volumes. That's just growing next to each other.

Your trade payables were down in Q125, which is somewhat surprising as your sales were up year on year. What is it related to?

This is due to a reporting date effect. We try to use early payment discounts as much as possible.

Can you remind us again about the background for the seasonal uptake and provisions in the first quarter?

Yes, provisions are always coming back in Q1 due to bonus payments to our dealers and staff, which are booked against the provisions that were built up throughout the previous year. This is the quite big impact we can see in the cash flow statement in Q1.

Investments were extremely low. Are you facing delays in your investment projects or are you deliberately slowing down the pace of spending in view of the macro uncertainties?

No, we are on schedule with the investment projects. We had a delay in Wittenheim, but that's now on a good track. Invoices are still largely outstanding, but these will finally come. Our CapEx plans are around 40 million euro for 2025.

Thank you, Peter. Now I have a couple more questions for you, Jörg. Cash flow from operations decreased a lot in Q1 2025, given higher tax payment and working capital outflows. Why is that and what's the trend going forward?

The tax outflow is just a reporting date effect, so it's a one-time effect. And last year, these tax payments happened in Q2. Now it's in Q1. So for the full year, there is no effect at all. Trade receivables is increased proportional to our sales level. Inventory is also increased due to the U.S. tariffs, well, to the U.S., let's say, market development. and also with associated valuation on these inventories. And these, the whole effects of the working capital, they will even out over the course of the year. And we have this negative effect in Q1 and this will not, we will not see the effect for the full year. There's nothing to worry about.

Where do you want to get to in terms of target sales staff?

We have planned to increase our sales people by another 10% in the full year of 2025.

Headcount increased 4.6% both year over year and sequentially in Q1. Should we expect a similar rate of increase in the coming quarters?

Yes, our plan is to increase the total workforce to around 2,800 employees by the end of the year. We will use natural fluctuation in the overhead processes and rebalance the share to more salespeople. It is important for us that the hirings, the new people that we take on board, that they are translated into unit growth. Otherwise, we will try to avoid any hirings.

And one last question for you, Jörg, on OPEX. Why is there such a sharp decline in the other operating expenses? Was there a special effect?

A sharp decline in operating expenses? The other. That is mainly due to the FX results, which is making up for around 90% of that position.

Okay. Thank you very much. No more questions. Back to you, Stefan.

Okay. Thank you, Nicole. Thank you, Peter. Thank you, Jörg. So it seems that all questions have been answered now. I want to thank you for your participation in the call. And, of course, we hope you found it helpful. And please feel free to provide us with any feedback. So now let me make a few comments on upcoming events. So first of all, I would like to invite you to our IR follow-up talk on the results published today. So this will take place on 15 May 25 at 2 p.m. CET. So this is Thursday next week. And you can register via our IR calendar on our website, And, of course, we would be pleased to welcome you to this session and discuss maybe upcoming questions with you. Another very important event is, of course, taking place next week, and that is our annual general meeting in Augsburg on Wednesday, 14 May at 10 p.m. So we would be really happy to welcome the one or the other of you in Augsburg. And if you are interested to come, please give us a call or send us an email. So the last day for subscription is tomorrow, but we could then maybe arrange a guest card for you if you are not able to subscribe anymore. And with that being said, I hope to see you next week. or otherwise until the half-year one release on the 5th August 2025. So take care and goodbye.