RENK Group AG (R3NK) Earnings Call Transcript

Hello, ladies and gentlemen, and welcome to the call regarding the RENK Group AG Preliminary Full Year 2024 results. [Operator Instructions] Let me now turn the floor over to your host, CEO, Susanne Wiegand.

Hello, and welcome, everybody. Susanne Wiegand speaking. Thanks for the intro. I'm pleased to welcome you all to our announcement call to give you a heads up trading update on Q4 last year as well as fiscal year-end first KPIs, which we are happy to disclose. So we welcome the opportunity to inform you on our key highlights for the fourth quarter last year. And also, as I just said, the full year, certainly. And as you're aware, all figures are preliminary and unaudited. However, we are very pleased with the performance of Q4, especially last year, which significantly contributed to the year-end results. All is in line with what we consistently communicated to the market so far and is meeting our guidance and projections. I'm also happy to report that all 3 segments developed very well in 2024 and contributed to the strong results. Our data set is based on robust, but as said, still preliminary, unaudited figures. Nevertheless, we are convinced that they are relevant to your assessment and analysis of RENK Group AG's performance, and since what we have communicated to you officially in our call in November last year. So key messages is that we remain on track for both fiscal year 2024 guidance as well as our medium-term targets. We will, of course, be discussing those figures in greater detail when we report the full year results on the 26th of March, but let's have a look now at a little more detail into order intake, revenue and adjusted EBIT. Order intake increased considerably by 13% in 2024 to EUR 1.4 billion compared to the EUR 1.3 billion, which we achieved in '23. So 13% growth from '23 to '24, which is again an all-time high for RENK in order intake. Q4 2024, we saw a very strong contribution to that development with an increase of 60% in order intake, especially driven by our segment VMS and in line with our expectations communicated in the Q3 '24 call, back in November and the various meetings and discussions we had with most of you during our recent conferences and road shows. Book-to-bill on a year-over-year basis was at 1.3x, so considerably beyond 1.0. So what you see here is that this especially means that we are building up order backlog, that we keep the pace, not just on what we perform in output, but that we grab on the market quite a large number, which is supported by continuously strong tailwinds from the market, and obviously, [ owed ] to the fact to our superb market position. With respect to revenue, year-over-year revenue growth amounts to 23%. So we came back in '23 from EUR 0.9 billion and have achieved last year a little bit more than EUR 1.1 billion in 2024. Again, Q4 last year contributed with almost EUR 400 million to that significant increase. This is a plus of 33% compared to the last quarter in '23 revenues. All 3 segments showed strong performance with 2-digit growth rates. But again, our largest segment, VMS, was particularly strong with 40% revenue growth in Q4, thanks to the level of efficiency achieved in Augsburg. Having now a look on the adjusted EBIT, adjusted EBIT is at EUR 189 million. This represents an increase of 26% compared to fiscal year '23 numbers, where we ended up with a total of EUR 150 million. So 26% increase in adjusted EBIT. This substantial growth in adjusted EBIT is higher than our revenue growth. So reflecting enhanced operating leverage on a group basis. So good news here is that we see first time, operating positive leverage dropping down to the bottom line. The adjusted EBIT in Q4 last year strongly contributed to that development. You are all aware that we were rather back-end loaded last year, and this contributed with EUR 77 million compared to EUR 46 million in Q4 in '23. So strong adjusted EBIT growth last year. There with, we achieved an adjusted EBIT margin of more than 21% in the last quarter '24 with a very strong performance of VMS again in Q4 2024. The segment showed an adjusted EBIT growth of 84% in comparison to last quarter back in '23 at a margin of north of 26%. But we are similarly proud that our segment Marine & Industry has achieved an adjusted EBIT margin above 10% for the full year and slide bearing segment has delivered an adjusted EBIT margin above group level. So all 3 segments performed very well. In total, for the full year, adjusted EBIT margin came in at 16.6% after 16.2% in fiscal year '23. In addition to growth and profitability, we would like to shed a light and a look into net working capital and net leverage. Net working capital, as you're all aware, is one of our homework areas. We decreased net working capital as envisaged to about 25% of total sales compared to almost 27% at the end of '23 and close to 29% at the end of Q3 in 2024. So the decrease down to about 25% here also achieved. The net leverage is, by the end of last year, below 1.9x and compared to 2.4x at the end of '23. Also here, a good development, thanks to the strong performance and also thanks and supported by our strong cash generation and cash production by the end of last year. I would like to flip the page. Thank you, Christian, for that. So having met our fiscal year '24 target and guidance with respect to the EUR 1.1 billion on the revenue line and with a EUR 189 million adjusted EBIT lending at the very upper end of the narrowed guidance, which we narrowed mid of last year from the original EUR 160 million to EUR 190 million, to the upper end EUR 175 million to EUR 190 million. So with our preliminary adjusted EBIT result of EUR 189 million, landing at the upper end of that narrowed guidance, we are very satisfied and pleased with the overall results. With respect to the midterm targets, they have not changed so far. We confirm that here with again, we see for the midterm, an average CAGR on the top line of the 15%, which you are already familiarized with. And for the midterm, which is a horizon of about 3 years, an absolute adjusted EBIT of EUR 300 million. Having said all of this, maybe some closing remarks from my side before we open up Q&A. We are also pleased and you might have heard or read that we could conclude on a smaller M&A transaction by the end of last year. We signed an asset purchase agreement with the owners of Cincinnati Gears in the U.S. to strengthen and localize our Navy business in the North American market. The acquisition is value-accretive. The acquisitions in size and magnitude is in the area of our last acquisition, General Kinetics. We will pay the purchase price for the assets out of our cash, and we expect closing within the next 6 to 10 weeks. So by the end of March about, we should see closing coming sooner. Post-merger integration processes have started. The team is up and running strategically. We were able to close our gap with respect to, maybe localization in the U.S. and following what we have done 3 years ago in 2021 on the land side with the acquisition of the CPS assets from L3Harris back in '21. With respect to an outlook, the management team will give when we report on the full year figures by the end of March, also the guidance for the year 2025. But I think here sitting with my colleagues, we can confirm that we continue to implement our strategy. We will deliver further profitable growth. We will focus on the post merger integration of Cincinnati Gears. We will further work on net working capital and the remaining piece of final sustainable stabilization of processes in the operating model within RENK America as an issue of the first weeks of this year. However, we consider the issues and problems we had and challenges we had in '24. So having said all of this, happy to receive your questions, and I would hand back to the operator. Thank you very much for listening, and I hope you have a lot of questions for us.

[Operator Instructions] The first question comes from Sven Sauer, Kepler Cheuvreux.

I was wondering if you could speak a little bit on what contributed to the strong order intake in Q4 in terms of, maybe platforms or aftermarket? Yes, maybe you could provide some color on that?

Sure. Sven, thanks for the question. Happy to give some color on the specific strong order intake we could secure in Q4. There is basically 3 big order intakes to mention, all fall into the VMS segment. One is a larger package of Leopard transmissions for various end customers, which we concluded with KNDS. So the prime contractor the Leopard 2 tanks. Various end customers include Sweden, Germany and others. So this is securing also deliverability on the KNDS side for the Leopard programs for the midterm. The second larger order intake, if we talk here in RENK larger order intake, this is something which is north of EUR 100 million. We have secured with the government of Israel, securing and supplying the next batches of Merkava tanks. And [indiscernible] platform as well is running on our transmission. The third larger order above EUR 100 million is the second batch for the K2 main battle tank, which the Koreans supply into the end customer product, where we are delivering at the moment on the first batch, all well known, I think, to the market. So those 3 bigger orders obviously contributed to the strong order intake, which we have realized in Q4 last year.

Meanwhile, we have no more questions. [Operator Instructions]

We have received 2 questions from George from Berenberg in writing, which we are happy to answer here and to handle with. His first question is that RENK plans on making further acquisitions in the Marine segment following the acquisition of Cincinnati Gearing Systems announced in December? Or does this acquisition largely achieved the U.S. presence and scale you were looking for in this market? Our answer to this is yes, indeed, this acquisition is largely achieving our U.S. presence and scale in the market. We are not intending to make further big acquisitions and maybe, if we find something suitable in the global market space which makes sense for us region-wise or platform-wise, not so much technology-wise, since we are leading anyhow technology-wise, we would look at that. But our strategic priority has been solved, so to say, with that acquisition last year, specifically for the North American market. The asset is in very good condition and doesn't even require any immediate CapEx or something like this. So it's an up and running, well-performing operation with a long-term contract already for the U.S. Navy with a significant backlog, which we have also, positively speaking, inherited and bought with the assets, and this is allowing us on that basis in the future to supply and deliver to the U.S. Navy, to the U.S. Coast Guard and potential export customers out of the U.S. market any naval geared solutions, which we have at RENK in the portfolio. The second question which we got from George is how many transmissions did you deliver in '24? And what do you expect to deliver in '25? What levels could you achieve in the midterm, '27 to '28? Generally speaking, we are not disclosing precise numbers of produced units. The midterm projection is in line with our average CAGR, which we have also guided, so at least 15%. We delivered more than 1,000 transmissions in the last year in combination of the Augsburg plant and RENK America. The vast majority of those transmissions was new transmissions since in the U.S., the entirety of the amount is all new. In Augsburg, it's a mixture, as you are aware, and this has been complemented by a large package of spare parts, which we produced also, specifically in the last month last year here out of Augsburg. And if you take all of this together, so the entire produced volume of new transmissions in that mixture of overhaul and spare part packages contributed also to the superior margin quality, which we have seen in Q4.

Okay. We have 2 more questions. So the first question comes from Marie-Therese Gruebner, Hauck Aufhauser.

I just want to come back to the margin in VMS in the fourth quarter. As you pointed out, you had a large -- some spare parts package coming through in the last month. So the question is, is this margin you were able to achieve in Q4 for VMS something we could see again in Q4 '25? Or was it very much skewed towards aftermarket in an abnormal way, let's put it this way?

Marie-Therese, thanks for your question. The margin generally which we achieved in Q4 is a result of a mixture of positive leverage on the volume. We were able to produce specifically in Augsburg and the aftermarket piece, which is in. So we cannot assume that we see the superior margin continuously quarter-by-quarter now. And I would say it has nothing to do with the seasonal pattern of last quarter year-end. So that's why I would assume that we see in a margin mixture in '25, let's say, a similar mixture, but on that high level of let's say, positive effect of margin mix together with the spare parts and this volume coming down with a positive leverage is not, let's say, the level for a full year. So what we can expect for '25 for the full year is obviously an improved margin to '24 because '24 still suffered significantly by the first 6 months of bad performance in RENK America, which we were able to compensate. However, we don't expect to get that problem again, not at all for '25. So we'll see definitely improvement of the overall full year margin, but to take, so to say, Q4 as one selected dedicated quarter, I think it's not the way to think about quarter-by-quarter continuously on that level. So it was a positive mixture of product mix.

Maybe one more question. Can you give us like an overview of the potential sources of large orders in '25 in VMS in terms of various programs where you are more or less involved?

Happy to do that. I think Alexander takes over the questions.

Marie-Therese, good to hear you. Just to continue what Susanne has said, I think we had a very good order intake before Christmas, just explained by Susanne. And if we look at 2025, there are key programs coming from the Italian customer out of this cooperation with Leonardo and Rheinmetall. We are looking, of course, on additional opportunities in Europe. If we talk, for example, about main battle tanks, IFVs for the Romanian customer. We also see on the U.S. side, incoming orders by the continuation of the [ SAR ] contract, where we do expect significant orders. And I think these are, for the time being, the majors what we have. But as we have seen in the last year, we do not only have on the big bucks or the big order intakes, we have plenty of smaller order intakes, and that's the same what we see clearly. But it's also fair to say that we continue our acquisition and project work on key programs looking a little bit further in the future. If you take, for example, [indiscernible], where we are starting to supply some prototypes. Yes, I think that's it.

More questions?