Washtec Ag Augsburg

Good afternoon, ladies and gentlemen, and welcome to WashTech's earnings call on the results of the first third quarter and the first nine months of 2026. My name is Kevin Lorenz, Investor Relations Manager at WashTech, and with me today is our Chief Financial Officer, Andreas Pabst. We'll first provide an update on current developments at WashTech and then guide you through our financial results. Following the presentation, the floor will be open for questions. You may already now enter the queue or submit your questions via the webcast. But without further ado, I am now handing over to our CFO, Andreas Pabst.

Thank you, Kevin. Hello everybody, also from my side a very warm welcome. I'm pleased that you took the time today to listen to the latest news and figures on Washtec, especially as there has been a lot to speak about since our last call in August. Before we step into the figures, I would like to address four current topics. The changes in our organization, the geographical expansion of Mark VII in North America, the status of our main efficiency programs, and the progress of the production relocation to Nurani in the Czech Republic. All of them are essential for our future development and explain some of our current results. Let me start with the organizational changes. First, the supervisory board has extended the contract of our CEO, Michael Drolshagen, until the end of April 2030. This provides leadership continuity for the coming years and it gives stability to move strongly forward on our path to become the leading solution provider for the global car wash market. Our management board consists now of two members for the foreseeable future. This contributes a lot to faster decisions. At the same time, we have streamlined reporting lines and redistributed selected responsibilities within the organization. A central part of this change is the appointment of Arthur Wessels, a senior executive vice president for global sales and marketing. Arthur has been with WashTech since 1992. So he is really an experienced guy. In German, you would say, ein alter Hase. He knows our business, our customers, our markets extremely well and therefore strongly endorses our transformation from an equipment to a solution provider. His previous responsibilities included our global key account business, standing for approximately 40% of our revenues, our subsidiary in the Netherlands and the car wash management business. We also have made several changes at middle management level, e.g. head of global service, head of product management, one regional head and some others. Those changes were implemented till October. Here our objective is quite simple. Clearer responsibilities, faster decisions and strong accountability through the whole organization. These unplanned expenses of currently 2 million euros relating to this organizational optimizations are reflected in our first nine months figures, which I will explain later. But let me make here one important point. If you walk through the aisles of our company and when you participate in meetings, you really can feel this revitalized optimism, which comes along with this new wind in the management team. Speed matters. Now, let us have a look at our North American segment. You know that we have presented the five pillars of our strategy 2030 for North America during the latest capital markets webcast. Today, I want to focus on the pillar for the geographical expansion of mark seven. Our strategy is to strengthen direct sales and services in high volume wash markets while keeping customers relationship close to mark seven. In selected other areas, we will continue to work with hybrid territories where this is the better commercial setup. We are also establishing direct consumable sales channels in the most attractive markets. This gives us better access to large attenders from multi-site operators and supports our focus on C-stores, fuel stations and professional car wash operators. The important message today is we are on track. The additional equipment and consumable sales representatives planned for this phase have been hired according to schedule. We finalized our hiring in most states and we are targeting. As of September 13th, we have 345 employees, whereas at the beginning of the year we had 306. Similar number than at the beginning of Q3. Most of these new hirings are in the sales and service area. And we have implemented for every sales rep and every service technicians a so-called toll gate after 6, 12 and 24 months to check if our expectations have been met. On the other side, we all know that there is a ramp up in the learning curve in the first months, what we see in actual quarter. The next task is now to translate the stronger market presents into sustainable revenue and recurring business. This brings me to our main efficiency programs. Let's start from the right. The global scope configurator remains on track. We plan to onboard all European countries by the end of the first quarter 2027 and the content for scope 2 and scope 3 has already been agreed. Why scope 2 and 3? That's because our sales reps really start to love the tool. You can see it on the graph on our pilot region. The line indicates the number of rollovers ordered via the scope configurator. The cost down in modularization program has seen some delay because management capacity was focused on the production footprint, installation cost, as well as on quality. The improvement in quality is illustrated by this gauge, which shows that after just nine months, we are already very close to our full year target of 717 quality points. Quality has increasingly become part of WashTech's DNA. In installation, our task force is showing visible progress. Installation cost per unit has now decreased for the third month in a row. However, absolute cost level is still above prior year, so the job is not finished. And for the remaining program, optimization of production footprint, let's turn to the next page. The main topic of optimization of our production footprint is for sure the enlargement of our jet production. The project is now nearing completion. Sheet metal production and the warehouse in Derking near Augsburg have been closed. The machines and workstations have been transferred and the new equipment, including laser and vending machines, is operational. The assembly relocation has also been completed without major production disruption. The new warehouse is commissioned and operational. This is an important achievement given the complexity of the project. Only two minor steps remain. In plant one, we need to relocate welding workstations to the former assembly hall and in plant three, around 1,200 inbound logistics storage locations remain to be transferred from Augsburg to Czech Republic until end of this year. We expect the full project, including all possible transfers, to be finalized around the end of 2026 or the beginning of 2027. We see the progress of the project. We see that it is working and it will contribute to our future profitability. But we underestimated the complexity of the relocation and prolonged negotiations with the workers' council. We expected to get first savings earlier to cover better the transformational cost. Here we failed as the project is not cost neutral in 2026 as originally planned. Nevertheless, management is convinced that the expected savings will materialize once the new setup is fully operational. So overall, the strategic direction remains unchanged. We see progress, but we must convert this progress into stronger earnings faster. With this operational update, let us now come to the financial figures for the first nine months and the third quarter of 2026. Summing up the first nine months in one statement. Positive revenue performance, but EBIT and free cash flow were clearly weighed down. At 375 million euro, revenue for the first nine months reached the highest level shown in this five-year comparison. An increase compared to prior year by 4.6%. Both our Europe and other segment and North America contributed to this growth. All-in EBIT amounted to 25.7 million euro compared to 32.4 million in the prior year's period. The corresponding EBIT margin was 6.9%. Taking out the 2 million for ongoing organizational optimization, EBIT stands at 27.7 million euro with an EBIT margin of 7.4%. North America improved year over year while Europe and other segment was affected by expenses for the implementation of our efficiency programs and organizational optimization. Free cash flow came in at 8.6 million euros, 19.2 million euros below the previous year's level. The main reasons were significantly higher net operating working capital and increased capital expenditures. The chart shows the central challenge very clearly. WashTech has grown its top line, but the conversion of this growth into earnings and cash flow needs to improve. This is exactly why we speeding up the implementation measures and program while this is so important. Looking at this specifically at the third quarter, revenue was 127 million slightly above price years period. The revenue mix shifted towards North America and toward equipment while consumables remained affected mainly by lower wash volumes. The third quarter EBIT was even excluding extraordinary expenses for organizational optimization, clearly below prior year. The quarter continued to carry costs from the production footprint measures and installation costs at a high level, even if we see now some improvements month on month. Also in Q3, we see for the first time a slight decrease in material, slight increase in material costs, mainly for chemicals and some metals like copper. North America, we follow our strategy and see the expected dip in line with higher number of employees. Free cash flow was also below the comparable period, reflecting the higher working capital requirement and investment activity. Let us look now at our business lines in more detail. Overall, equipment is the main growth driver. Revenue in the first nine months increased by 6.9% to 196 million, whereas in Q3 we had a slight decrease. Year-to-date growth was recorded in both segments, with a significantly stronger percentage increase in North America. Service revenue increased by 4.7% from 160 million to 122 million euros. This is encouraging because service is an important part of our recurring revenue base and benefits from the expansion of our installed equipment base as well as from the additional 47 service staffs we have on the payroll compared to last year. Consumable revenues decreased by 2.6% to 52 million, mainly due to the weather-related decline in the car wash volumes in the first four to five months of this year. Furthermore, we had very closely observing the behavior of our car washing people facing higher fuel prices. Overall, the revenue decrease was less pronounced than the decline in the average wash volumes per equipment. This underlines the resilience of our pricing and customer relationship. In Q3, we already could observe a slight increase in consumable revenues. If we look at our aim to expand recurring revenues, we see a slight step back after nine months. Recurring revenues stand for 46.5% of total revenues, whereas prior year we already had 47.5%. In Q3, the ratio improved again and we believe that with our strategy to become a solution provider with our supporting initiatives like the scope configurator, we are on the right path here. Turning to our reporting segments. In Europe and other, revenue in the first nine months reached 380 million. Equipment and service increased while consumer bills were below the prior year due to the lower wash volumes. In third quarter, segment revenue was 0.9% below prior year's period, mainly because of lower sales volumes. Earnings in Europe and other were burdened by the implementation costs of our efficiency programs and by the 2 million euros for extraordinary expenses for the organizational optimization.

North America developed positively.