WashTec AG (WSU) Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to the WashTec conference call on the report of the first half year 2025. My name is Kevin Rowand, Investor Relations Manager at WashTec. And with me today, I have our Chief Financial Officer, Andreas Pabst, who will guide you through the results for the first half year. Unfortunately, our CEO, Michael Drolshagen, cannot join us today. But during the recent Capital Markets webcast, which is also available on our Investor Relations website, we gave quite a deep insight into recent developments at WashTec. As you might have -- you might have already seen, we are now using a new platform for our conference call. The floor will be open for questions following the presentation. Anyone who enrolled to our e-mail distribution list received a link with which you are able to ask questions. [Operator Instructions] Of course, this call will be recorded and made available on our website. And with that, let me hand over to our Chief Financial Officer, Andreas Pabst.

Thank you, Kevin. Welcome, everybody. Glad to have you here in this call. Despite the fact that the focus today on financials, I would also give you a hint that in our first Capital Markets webcast on July 10, the Management Board of WashTec gave a deep insight into our strategic direction, our transformation to a solution provider, our financial framework and first time into our financial midterm targets. But now coming to the results of H1 '25. On this slide, you can see our main financial KPIs on a long-term basis. And to make it short, WashTec is doing pretty well. In half year -- in the first half year, we were able to increase our revenues by 5.6% to now EUR 232 million, especially Europe performed quite good. Our EBIT margin after 6 months is back on the good level of last year, meaning we show up with an EBIT of EUR 17.6 million, which is in absolute terms, EUR 1 million above last year. And also our free cash flow stays at a high level of EUR 20 million. Before we step into our business lines and segments, let's have a glimpse on Q2 stand-alone. Also in the current quarter, we were able to outperform our top line compared to prior year second quarter, a plus of 3.5% in terms of revenue results to a total amount of EUR 124 million in the second quarter 2025. But more impressive is that we achieved an increase in EBIT to EUR 12.7 million, a plus of 10.4% compared to prior year. Our EBIT margin stands at 10.3%, the highest profitability since 2021. So overall, in Q2, we are back on track according to our guidance. Top line growth accompanied by an overproportional growth of profitability. Now coming to more details on our revenue streams, starting with our business lines. Equipment revenues slightly increased in the first half year as well as in the second quarter. Sales in Europe, especially in Germany and France, were pretty strong and compensated the shortfall in North America. Given the good order intake and strong order backlog as of June 30 in all regions, we see further good equipment sales. Our recurring revenues with service and consumables are still quite good. After 6 months, service was up by 8.4% to now EUR 78 million, whereas consumable revenues expanded by 12.4% to now EUR 38 million. Especially in the first quarter, we had some tailwinds because of good washing weather, but we also work on further improvement lying in our own hands. As an example, we invested in our service network and hired around about 80 service employees. And to increase the efficiency of our service technicians, we sit them with a new field service solution software. But there are also some other ideas for improving the efficiency of our service in our back office. New service technicians must be trained. This goes along with slightly weaker profitability, but we see that we are on the right track. In terms of consumables, we are doing well, too. The new products like MagicCare or the new packaging [ TeminaBox ] help to intensify customer contact and give us the possibility to create new consumable bundle offers. The total ratio of recurring revenues was 47% in the second quarter. This is slightly lower than the first 3 months of this year, but follows our regular revenue split throughout the year. Overall, the split of revenues is developing in the right direction. Recurring revenues in service and consumables expanding more and more. In H1, we already had 50% of recurring revenues compared to 48% in half year 1 2024. Let's now turn the perspective and take our segments in the focus. Giving an explanation in short, Europe is doing very well, whereas we have some topics in North America. First, Europe and others. In terms of revenue, we did EUR 80 million or 10% more than 1 year ago, altogether EUR 203 million. All business lines contributed to this positive development. Given the current order backlog and the positive impact from the launch of the new SmartCare Connect embedded in the Bright Future campaign as well as the efficiency initiatives, we expect good quarters to come. Our EBIT increased by 16% to now EUR 90 million for the first 6 months and impressive development and shows now a clear disproportionate EBIT increase of profitability in excess of revenue growth. As mentioned above, we hired additional service technicians. Further, there are some IT projects, not only in Field Service Solutions, but also project SAP S/4HANA, and we expected in connection with the corporate strategy realignment, which we laid out in May and explained in detail in the Capital Markets webcast. Together with the product launch, this caused higher marketing expenses. And furthermore, in Germany, we faced some onetime payments according to the labor agreement. Besides this, we work full steam on our efficiency programs and have already achieved important milestones this year. Nonetheless, we will see the contribution of these effects as planned at a later point in time. Overall, the EBIT margin in this segment is 9.4% after 6 months to compare last year's 8.9% -- this becomes even more impressive if we recap that after 6.6% in the first quarter, we achieved now 11.8% in the second quarter. Coming now to North America. Revenue in the first 6 months [indiscernible] significantly by 15% to EUR 31 million, similar development also in Q2. This is mainly caused by lower turnover with key accounts. Increasing revenues with service and consumables couldn't cover this. Looking at the current order backlog and in July, we also had a good order intake, we can look more optimistic to the coming months. This optimism is also supported by successfully finalized contract negotiations with key accounts who are now starting to order again. Due to the lower revenue, segment EBIT is down at minus EUR 1.5 million compared to last year's EUR 0.2 million. To visualize all these influences, our EBIT bridge is helpful. Due to higher revenues, we could book EUR 3.7 million additional gross profit and another EUR 1.2 million due to the higher gross profit margin. The gross margin is now at 30.6% compared to last year's 30.0%. This positive performance was mainly due to the increased business volume in Europe and the favorable product and regional mix, which includes a higher percentage of service and consumables. Contrary, we had higher selling and marketing costs resulting from higher freight rates and the planned expansion of our sales team. Higher administrative expenses are mainly linked to IT expenses for ongoing projects such as already named SAP investments and new software for service optimization. In total, earnings before interest and tax are up by EUR 1 million to now EUR 70.6 million, which is an EBIT margin of 7.6%. Now some other important KPIs. In line with EBIT development, the net income increased compared to last year. Similar earnings per share. We achieved EUR 0.84 compared to last year's EUR 0.80. In respect of our net operating working capital, we see similar numbers by around EUR 84 million compared to end of June last year. Compared to the net operating working capital end of last year, which was EUR 94 million, we are down by around about EUR 10 million, mainly due to lower accounts receivable. As we are cautious about investments, it is not surprising that we are on a similar level to last year's after 6 months. The main portion of those investments is linked to our North American production plant, where we bought some machines to strengthen our local production footprint and through our digital products and solutions. With net financial debt of EUR 65 million, which is EUR 8 million above prior year level, credit lines of around about EUR 100 million and with an equity ratio of 22.8% compared to 24.9% end of Q2 '24, our balance sheet is still very solid and very healthy. In terms of employees, 110 people more work for WashTec compared to 1 year ago. The majority is hired for service. And we welcome 24 new WashTec employees in connection with the acquisition of the Polish company. Let us now have a glimpse on the order backlog. As usual, this slide doesn't give absolute numbers, but index numbers based on a 5 years view. In the first 6 months of 2025, we did very well in terms of order intake. In all regions, we have done better than 1 year before. The same statement is true for all customer groups. Consequently, this higher order intake results in a higher order backlog, which is by 21% over year-end 2024 or by 6% over end of Q2 2024. Knowing about our good order backlog, we have some clarity about increasing equipment revenues in the second half year in all segments, and this provides us with a good basis for the months ahead. Coming now to our guidance. We published our guidance on March 26. Only a few days later, economic growth was heavily shaken by the so-called Liberation Day. Since then, we have ongoing discussions. And finally, it looks like that we have a deal now with -- which is not so in favor for European companies. But given our local U.S. production footprint, we do not see major direct impact of the tariffs. Nonetheless, all the ongoing discussions and the uncertainty is not helpful for our business, especially predictability becomes more and more difficult. Given that statement in advance, WashTec keeps its guidance for 2025 based on current order backlog as well as progress of our initiatives. Especially the EBIT development in Q2 supports our guidance of a disproportional increase of EBIT compared to revenues. Overall, we expect a full year growth of revenues by mid-single-digit percentage and a disproportionate EBIT increase in excess of revenue growth. Full year's free cash flow is expected to be in the range of EUR 35 million to EUR 45 million, and we see also improvement in our ROCE number. Summing up, WashTec confirms its guidance for fiscal year 2025. The forecast is based on the assumption that the current global trade conflicts will not have any significant negative impact on investment behavior in the car wash market. So overall, we look optimistic in the future, and we keep our guidance. With that statement, I will shortly hand back to Kevin.

Before we start with questions and answers, a quick reminder. In September, we will participate at the Berenberg Goldman Sachs German Corporate Conference and in November at the German Equity Forum. We're looking forward to meeting you there. We will now begin with the question-answer session. Maybe give everyone a little bit more time to -- we have one question from Alexander Galista.

Good afternoon. I hope you can hear me.

Yes, we can hear you very well.

A couple of topics. Maybe starting out with market. It's good to see you have successfully concluded the negotiations with key accounts. Just wondering how happy are you with the outcome? Was it in line with your expectations or maybe you could fare better than thought? And also, if you can remind us what are the dynamics of those negotiations trickling down into your order backlog? To what extent is it already reflected? To what extent is it not? And then maybe kind of a second tier question to the topic of North America equipment. You mentioned that you expect a return to normal in the coming months. Just wondering if you could add some color what do you mean by normal? Will you be able to get close to second half 2024 in terms of revenue for the North American market? And maybe specifically for equipment sales within North America, whether you expect equipment to return to growth in second half on a year-on-year basis?

So maybe I try to answer all your questions, how good I can without naming the customers, which are behind. So Alexander, that is true. We had one of our -- some of our major customers say they were long-term negotiations. We expected them to be finalized on the first step end of last year. And it turned out that it took much longer. And especially in North America, therefore, we did not see too many order intake from those major customers. Now the contract has been signed. And regarding to question, what is it compared to the former contract with the customer, it is split between Europe and North America. But in total, we see that we are -- that the total volume we get with the customer over the next years is higher than we got within the old framework. And coming now to the North American business, yes, we are depending there really more on those specific customers. They did not have ordered too much in the first half year. Now the contract is signed, we already see first order intake in North America. But what is also important is that we got some tunnel orders in North America, which is pretty helpful. So also -- and that is why I mentioned the July order intake in my speech was a good month in terms of order intake in North America. Now it depends when we can convert this order intake into revenue. So giving the, let's call it, the segment forecast in terms of revenue, it's probably a little bit too early because we do not really see especially for those tunnel offers, do we get this or turn it into revenue already this year or will it be next year? But overall, we really believe that we are now speeding up in North America.

Okay. Perfect. Then maybe a couple of other topics regarding consumables. What one can see, and I think you were always transparent on consumables reporting that there has been a shift in momentum in 2022, where you started really to grow the vertical. And one can see that this growth was characterized by sort of surges in revenues in 1 or 2 quarters, I guess, as you onboard customers and they stock up chemicals and then subsequent sort of return to a normalized run rate level. And the last such surge has occurred in Q2 2024, which made the comparison especially demanding for this quarter, yet you still managed to grow consumables slightly. So my question here is do the first half revenues in consumables represent a good normalized run rate or whether those revenues that you reported in the first half are somehow propped up by onboarding of customers? Or are there any other special effects related to weather? And if so, then to what extent that was propped up? And kind of related to that, is that fair to think that second half consumables would be at least on par with the first half?

So I would say in the first half year, there is not really a big impact from one big customer in terms of consumables. So that's something we had 2023, 2024 when we onboarded the first customer and then it slowed down a bit. So what we see in this year is that especially Q1 was very good washing weather, yes. So it was more or less sunny every day. That helps the consumable business, whereas I would say Q2 was a more normalized business in terms of consumables. Where we are optimistic for the near future is that we are now rolling out this -- some new products like the MagicCare. It's really an excellent product. It's a new polish. You really see it on the car. And if you can combine this one together with other offerings we have in consumables, I think then there is a lot of room for improving the business. But once again, relating to your question, what was more normalized year, I would say Q2 was normalized. And if we combine Q1 and Q2, then things special in. Okay. Understood.

And with -- just to clarify this MagicCare, has this been already a factor behind revenue growth in consumables in prior quarters? Or is this something that is just about to sort of help?

It's really pretty new, and we are currently working on how we want to go to the market with this new product. It's really outstanding. The question is how we will approach the market. And will we give this as a single product? Or do we combine it with other products in our consumable portfolio. So that is where we are currently working. But as a polish, it is really good. So -- and therefore, we are optimistic.

Perfectly clear. And then I think I'll just ask another one, and then I'll go back in queue if there is one. With regards to SmartCare Connect and SoftCare, could you maybe give some color on the dynamics you're seeing there when you acquire new customers or maybe when you replace machines, what percentage of customers opt for SmartCare Connect as opposed to SoftCare? Like what are the dynamics you're seeing in this business?

So the order dynamics doesn't really change. It is based on rollover and Connect is really a good machine. So it's more that we have it in our own hand, what we are selling. And we have this market launch of SoftCare Connect was May 5. May 5. And from that day onwards, we only sell SmartCare Connect. There is only a very minor number of software, which we are selling due to old contracts, and it will really fade out.

Thank you. I’ll get back in queue.