Dear ladies and gentlemen, welcome to the half year results 2025 analyst conference call of FUCHS SE. This conference will be recorded. As a reminder, all participants will be in listen-only mode. After the presentation, there will be an opportunity for the analysts of FUCHS to ask questions. May I now hand you to Lutz Ackermann, Head of Investor Relations of FUCHS SE, who will start the meeting today. Please go ahead.
Yes, good afternoon, ladies and gentlemen. This is Lutz Ackermann speaking. On behalf of FUCHS SE, I wish you a very warm welcome to today's conference call on the Half Year Figures. With me on the call today is our CEO, Stefan Fuchs, and for the first time, our CFO, Esma Saglik. As always, Stefan and Esma will run you through the presentation, which is then followed by a Q&A session. All the documents for this call today you can find on the homepage in the IR section. Having said this, I would like to hand over to Stefan. Stefan, please go ahead.
Thank you very much, Lutz, and a very warm welcome from my side. You see here again our executive board. As you know, since March 7, we have two changes, and the second change will start tomorrow morning. Mathieu Boulandet , as you all know, he's 42 years old. He's a chemist. He worked for 20 years in our industry. Tomorrow morning, he will have his first workday here in Mannheim. He moved to the region with his entire family. We very much look forward to welcoming him, and there will be an orderly handover process from Sebastian to Matt. The other change is already three months with us, and it's a pleasure working with Esma. Also, all of you might already know her and met her. It's good to say a few words to herself, and I hand over to Esma.
Thank you very much, Stefan. Also, a very welcome from my side. Quickly to my person. As you heard, my name is Esma Saglik, and I'm now almost 25 years in the industrial or in the international finance world, and working in different branches like the automotive industry, the construction industry, and the metalworking industry. The last five years before I started with FUCHS, I was at the company REHAU Industries as a board member and CFO, and now three months here, and I'm happy to be here. I would say let's get started with the financials. Yeah, we started our year on a positive note, I think, with a quite solid first quarter. As we all know, currently, we are navigating through a challenging market environment.
Demand in different segments and industrial production across Europe are weak, and the continued discussion around tariffs brought a huge uncertainty into the market. Also, we at FUCHS faced a fact in the second quarter, especially in June, and as a result, we didn't meet our expectations. This brought us also to the decision to revise our full year 2025 guidance, as we do not expect a significant market recovery for the rest of the year. Nevertheless, we still managed to grow our sales in the first half year by 2% year- over- year. It was equally by internal growth, mainly volume-driven, and external growth through our recent acquisitions of BOSS, IRMCO, LUBCON and the STRUB Group . Here, just as a side note, LUBCON and SRUB are now unified under the brand FUCHS SWISS LUBRICANTS .
This consolidation strengthens our market presence in Switzerland and enables us to offer a comprehensive product portfolio across all industries. Now, turning back to the EBIT, this came in below our expectations. While we saw a slight improvement in our gross margin, we had a shortfall, unfortunately, in our EBIT. Main drivers of that were mainly the unfavorable weeks we have seen, especially in the U.S., along with a higher cost base from inflation and pre-investment we did into the future. On a more positive note, our free cash flow before acquisitions remains strong, coming in above the prior year. However, the drop in EBIT resulted in earnings per share falling by 7% compared to the last year. As mentioned earlier, we've adjusted our 2025 outlook. We still expect a weak macro-economic environment to continue into the second half year.
Nevertheless, recent projects we had and market share gains give us the confidence that we will achieve our sales level on par compared to last year. At the same time, we have revised our EBIT guidance down by 6%, still aiming to match last year's peak earnings. To support this, we already initiated different measures to strengthen our profitability in the second half year. To add some context to the year-over-year sales performance, initially, we expected a typical seasonal pattern with sales rising through the year and a softer Q4. However, Q2 remained largely flat compared to last year. Considering the broader economic climate and market headwinds we are having, I think this is still a solid result, but of course, it was below our expectations. Looking forward, we expect the second half year revenue to remain broadly in line with the previous year.
Moving over to the EBIT, on a quarterly basis, we are down compared to last year. The main reasons are inflationary-driven cost increases and the unfavorable mix, especially as I have mentioned, in America. We've seen some encouraging momentum in Asia-Pacific, but unfortunately, it wasn't enough to fully offset these pressures. For the second half year, we expect EBIT to come in slightly above last year's level, and that means for Q2, for half year two, sorry. To ensure this, we put tight cost control measures in place and will focus on the execution of our saving initiatives. Looking to our group sales development, we are still pleased to report sales growth organically and external in the first half year, despite all the tough market conditions we are facing.
Strong momentum, as mentioned, in Asia-Pacific and South America, which underlined the success of our local-to-local strategy and the strategic investments we have made over the last year. It also underlines the importance to stay close to our customers. Customer proximity is key, which was the key success factor for our main organic growth. On the external growth side, the main drivers were the successful integration of our acquisitions, LUBCON, STRUB, BOSS, and IRMCO . The latest two ones were being added earlier this year. Unfortunately, the strong development of the euro translated into a reduction in our revenue. As already mentioned, sales and EBIT showed a mixed picture for the first half year. Unfortunately, functional cost increases at a higher pace, driven by acquisitions, inflation, and some one-off investments to new customer projects, were the main drivers.
Some of these costs are pre-investments and are expected to normalize over the upcoming months. However, inflation remains still a concern and continues to impact our cost base. That's why we have already indicated different saving measures aiming to protect EBIT's performance in the second half of the year. Looking at our balance sheet KPIs, we are well on track. Let's have a look into our regions. The main growth in EMEA came from acquisitions, which helped to compensate the organic decline largely caused by economic softness across Europe, and here in particular to mention the automotive sector in Germany. The trend we have seen in Q1 is continuing for EMEA. On the other hand, the acquisitions we made highlight the strategic value of our investments we have done and provide us a strong platform for future growth.
Moving over to Asia-Pacific, Asia-Pacific delivered a very strong performance in the first half year, especially here to highlight China. Our decision to invest in local production continues to pay off, especially in our specialty segment. India had also a strong first half year, and Australia showed solid momentum. Here, especially to mention the automotive aftermarket segment. In summary, the development in Asia-Pacific was very positive, top and bottom line, and confirms the strength of our potential to our regional strategy. Looking over to the other side of the globe, North America is currently our challenging region. We were capable to grow our top line, but EBIT was significantly behind. Main drivers are the shift in the product mix we are seeing. We grow in our base business but had a flat performance in high margin segments.
In addition to that, the cost base remains heavily impacted by inflationary increase and future investments we have done. Also, South America continues to be a difficult economic environment. While its contribution to the group is limited, we are still monitoring it very closely. Moving over to the net liquidity, with the contribution of all three regions and, of course, the group, our free cash flow before acquisitions was strong at €81 million, well above last year's level, which was around €69 million. This was mainly driven by networking capital reduction, which is in line with the expectations we had. Despite the solid operational cash flow, dividend payments and acquisition-related investments led us to an overall cash outflow, bringing the net liquidity to a - €59 million.
That being said, we confirm our full year guidance and expect to close 2025 with a free cash flow before acquisitions of around €260 million. Regarding the net working capital, it is typical to see an increase in the first half year and a reduction towards the year end. Nevertheless, we were able to improve our net working capital year- over- year and quarter- over- quarter. Here, we also expect the positive trend to continue and anticipate further improvements towards the year end. Looking to our raw material trends, in terms of raw material, we observed a slight price increase for base oils in dollars. However, due to the devaluation of the dollar against the euro, prices in euro terms came slightly lower. On the other hand, additive prices and availability remain stable, which is the good news.
Looking ahead, we expect raw material costs to stay relatively stable while tariffs and FX development need to be, of course, watched closely. Summarizing the financial part, we expect sales to remain flat year- over- year with slightly higher volumes, but being offset by negative currency effects. We also expect EBIT and our free cash flow to remain at the strong level, similar to last year, supported by saving measures we have initiated and the stable capital employed. Finally, our free cash flow before acquisitions is expected to normalize during the year and will end up around the €260 million. I came to the end of my financial presentation, and I would like to hand over to Stefan.
Thank you, Esma. I just want to provide you with a brief update with things that happened since our last meeting three months ago. First of all, as you all know, FUCHS went to the Stock Exchange in 1985. This year, we were celebrating our 40th birthday, which we actually did at the Frankfurt Stock Exchange. I think we are really happy about that event because in our entire tenure being a Stock Exchange member, we never had a year with a loss, and we generated profits each single year, and we paid dividends each single year. As you all know, since 23 years in a row, we increased the dividend year by year, and we want to continue to do so to be the first, what many people would say, the dividend aristocrat in Germany after 25 years.
All in all, if many people ask us, I think we take really the best out of both worlds. The one world, I think, from a family-type company is the independence, which I think gives your employees, but also your customers, security and a positive planning horizon. In today's world, that's worth a lot, so we can concentrate on our business. The other part is that we fulfill all the capital market requirements, especially in having an independent supervisory board, which I personally think is a big asset, especially when you look at the interactions between me as the CEO and our supervisory board president. That's a really positive, challenging forum on behalf of the FUCHS Group, so I think that's really good. The other part is that, as you know, we made two acquisitions in Switzerland, the one indirectly through LUBCON.
When we purchased LUBCON, they had a Swiss subsidiary. We had no own activities since 2018 in Switzerland, and then we acquired SRUB at the end of the year. We have now merged those two legal entities and have renamed the legal entity as FUCHS SWISS LUBRICANTS . We have a nice setup in Reiden near Lucerne, where we have a manufacturing site, a laboratory, and an office, and what I think is a very good team. Now we want to grow and go from strength to strength in that important market for us. The other part is Mexico. As you all know, our three large gorillas, what I always say from companies in the FUCHS Group, are Germany, China, and the U.S., with immediate followers like Poland and Mexico. Mexico is a very important market for us.
As you can already see from the picture, we are in Querétaro, where we feel very comfortable, but we have now built on each single square meter available. We have now opened a logistic warehouse, and we come to the end of the lollipop, therefore we invested in a large piece of property in San Luis Potosí, which is a little bit north of Querétaro, which is a huge railway hub in the U.S. We will go in steps. This year we make the railway connection, next year we do the next step. I think that will be a very important site for us in the future. That's all I had to say. Now, Esma and I will look forward to get feedback from you and answer your questions.
Dear participants, as a reminder, if you wish to ask a question, please press star one, one on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star one, one again. Please stand by while we compile the Q&A rows. This will take a few moments. We are going to take our first question, and it comes to the line of Martin Rödiger from Kepler Cheuvreux . Your line is open. Please ask your question.
Hello, good afternoon, and thanks for taking my two questions, if I may. Can you talk a bit about the mixed effects in Americas as the margins are heavily down in the second quarter? I guess this is related to some low volumes in the mining industry and the industrial activities, which have certainly high margins, and not so much to the automotive business, which has probably lower margins. That is my first question. Second is a follow-up. Was there any destocking in volumes in the second quarter in Americas given the low organic sales growth we saw of roughly 1% in Q2? Thank you very much.
Thanks, Martin, for your questions. The one part really is if you look at North and South America, we had no growth in the second quarter. If you look back, the organic growth in Q1 was 8%, and in the second quarter, it was 1%. On the other hand, we were on top. We were hit on exchange rates, so we had a -7% exchange rate impact on the second quarter and +1% in the first quarter. We see the whole trade barriers and tariffs have really a little impact. It's far below $1 million what we have seen on us directly because we are local-to-local. The thing is, with regard to consumption in the U.S., the U.S. economy is down, especially we have experienced it, I would say, in the second half of May and in June that people are holding back on consuming certain things.
Yes, our almost entire existing business is down in the U.S., which is normally a high margin. We have gained some larger volume business, which on purpose we did. This comes with a lower margin, especially since most of the stuff is toll manufactured for us in the U.S. For us, it's a part of our strategy because on that business in other world markets, we earn very good money in Asia and in Europe. Therefore, we said as a part of FUCHS 2025 and preparing for FUCHS 100, we want to take on that business, learn with that business, and then multiply it positively in the future as we did in other markets. That's the main reason behind it. The one part, stocking on lubricants plays no role. Our customers don't stock up or down on lubricants. They have only a certain space available.
You find that sometimes with distributors and automotive aftermarket that they stock up or down if they expect a price increase. In all our B2B business, which is 75%+ , they have only that amount of tanks or storage space available. There is no direct impact on stocking.
Thank you very much.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one, one on your telephone keypad. We are going to take our next question. It comes to the line of Constantin Hesse from Jefferies. Your line is open. Please ask your question.
Yes, good morning. Thank you so much for taking my questions. I have three. The number one would be, I just want to have a quick chat and understand if there are currently any structural issues ongoing either in your Asia-Pacific business, EMEA, or in the Americas, particularly related to the automotive business. The second question would be, on the guidance cut that you did, it wasn't a very significant cut. I am curious to know how conservative you are currently being for the second half and if there is still risk based on if we were to take the June month and we were to run rate that to the end of the year, is that guidance kind of in line with that or is there still risk potentially to the bottom line there?
The third question would be, on the medium-term guidance that you used to have, the $500 million in EBIT, is that something that you believe you can achieve with the operating leverage by growing volumes alone or do you still need other levers to play here to basically support that level? Thank you.
Okay. I take the easy one. On the structural issues in the auto business, there are none. I mean, the auto business is, you know, is down in Europe. That part we see on the industrial side as well as on some of the first-filled parts of creases or shock absorbers. In Asia, it's a little bit different. The good thing is being, you know, very local in China. We have very good approval landscapes and relationships to Chinese OEMs, and we want to go with them, as you know, on the international expansion. That should help us. The other thing which helps us, I think, in China is that we have put a lot of effort in the last five-plus years into deep localizations in China, and still many, especially lubricants, are imported from the U.S.
Those customers or those market participants have a problem at the moment due to the tariffs. We might get the one or the other opportunity. The main part why Europe is down is really mainly around automotive and the industrial sector. As you know, a large piece of our OEM business is aftermarket business, which we call genuine brand or private label. That's a little bit decoupled from the car manufacturing. On the $500 million EBIT, to be honest, A, there will be a new profit goal coming with FUCHS 100 that is linked to conditions, what we don't, what we have not done with the FUCHS 2025 part. That will be most likely in the second quarter of next year be published. That's this part.
When you talk about top line and margin, because if you look at the margin, 35.1% on the gross profit, we are right in our target area. Margin is not a problem. The problem is that the top line is not there where we have anticipated it to be, and all our expenses are inflated, especially on the personnel side and on the freight side. That's one part where we have a serious look at the moment to make sure, you know, we have a better conversion from additional sales and margins into the profit part. The easy question with the guidance of 2025, I'm happy to hand over to Esma.
Thank you. If it comes to the risk regarding bottom line, what you have asked, I think it would be wrong to take June as the single point and extrapolate the number towards the end of the year. As I've mentioned before, we have, of course, in the first half year, also a couple of one-off investments. These were also mentioned in the Q1 call. This is the one-off which will be not repeating, and it will level out. Secondly, looking in our order pipeline, we have one new business. We are doing still share gains. With a local-to-local approach, what we are having, we see actually in the market where our competitors are exporting that we don't have this, and this helps us also to gain some share. All in all, we still believe that we will be capable to reach actually last year's numbers on the bottom line.
Of course, if you just take Q1, a half year one multiplied by two, that's actually still a gap. There are, as we said, one of the facts in the first half year one. Additionally, we mentioned that we have put measures in place doing tighter or actually cautious cost spend, let's say it this way, which will help us also to bring an uptick in the second half year.
If I may just follow up on that, your guidance for the second half really takes into account no recovery whatsoever, and it's solely based on your own initiatives of cost saving.
Constantin, if we get a recovery, we will be happy to take it. Looking into the market right now, it would actually be a bit, yeah, it would not be cautious enough to say, yeah, I can just say I think we have to be careful right now because we don't see what the market is doing. It's very volatile, and it would be difficult to say we see an uptick in the second half year. Therefore, we confirm last year.
Okay, thank you so much.
Thank you. Now we're going to take our next question, and it comes to the line of Michael Schaffer from ODDO BHF. Your line is open. Please ask your question.
Yeah, thanks for taking my two questions, basically all related to the Americas. I want to come back to the mix effect you have seen in the second quarter and given the decline also in EBIT, which you have shown also quarter over quarter and the drop-through rates from lower sales. I was intrigued basically to hear that from a volume perspective that your base business was growing and that you had flat specialties. I wonder whether you can give us a bit of color, basically how the specialties business may perform looking into the months ahead and whether we have seen whether this is returning then to growth with, let's say, more visibility and maybe also some clarity on the tariff side of things. The second related is those kind of one-off costs.
You mentioned that in the I presume that this is the Mercedes aftermarket deal we talked about in Q1 and affecting basically already the Q1 cost base. Can you quantify basically the release or the relief we should expect in the second half from those kind of initiatives or basically the kind of Mercedes investments? Maybe a third question, if I can squeeze this in. You talked about a substantiation of the expectations maybe on the cost bias for the second half in order to make your reduced guidance working. Basically, can you quantify what your plan in terms of cost outs for the second half compared to the first half leaving aside basically the Mercedes costs which are going out of the market?
I think when you come back, Michael, to the U.S. business, it was all with regard to what we would say more on the special side because it was what we call specialty. Wind, food, etc. It was metalworking, industrial, and it was underground coal mining. Normally, you have a higher margin but also higher expenses, but the operating profit is pretty healthy. Last year, the Americas had the best year ever. This year, all of those parts are down. If you take our automotive business and especially those deals which you have mentioned, they come with a lower gross profit percentage, but you normally can leverage it through the size, through your own expenses. At the end, the EBIT percentage is not so much different. Now, in the U.S., we don't have all the manufacturing capabilities. I think there were some overpromises done by the customers.
We stocked up in the beginning. We had to do some advertising in the beginning. I don't want to quantify that, but we had some ramp-up costs. Plus, you know, we import still a few products from Europe, which are all exempted, interestingly enough. Many chemicals are exempted from all the tariffs, whether they are 15% or 25%. Those lubricants fall underneath that bracket. We don't have all the capabilities yet in the U.S., and that's one part which we want to establish because on that part, we earn very good money in other parts of the world. Therefore, for the U.S., it's a big learning curve. If you stay into that example, we now deal with 160 Mercedes garages where we send hundreds of products to, which is pretty rough for our U.S. colleagues. We use 15 large distributors for that part. We get the products toll manufactured.
The profit generated in the U.S. is not very big, but the learning curve is quite nice because, as I said before, we earn very good money in other world regions on that business. Therefore, we have done it, and that's the whole reason behind that mixed part.
Coming to your third question, where you said, okay, how you want to substantiate the cost base you mentioned and substantiating the EBIT. We've been through it all regions and all departments and functions, of course, through the list of initiatives, what we can take, where we do have potentials to postpone costs, reduce costs, push to break. We made a huge list, I can ensure you. That's actually what we are going to deploy. Just as a roughly, it will be around a higher one-digit million or even up to a double-digit million of initiatives what we are having. Of course, depending on how the business will evolve, we will accordingly deploy it.
Okay, thank you very much. Very helpful.
Yeah.
Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one, one on your telephone keypad and wait for your name to be announced. Now we're going to take our next question. It comes to the line of Oliver Schwartz from Warburg Research. Your line is open. Please ask your question.
Hello, ladies and gentlemen. Thank you for taking my questions. I have two. Firstly, can you give us more details about the upcoming savings that will help you to navigate H2 in the currently rather difficult conditions? You alluded to not only, let's say, I wouldn't say one-off costs or extraordinary costs going down, but also savings. I'm wondering whether those savings have, let's say, a one-time nature or whether they will also be prolonged or also help, let's say, oncoming earnings generation in the respective regions where you implement them. That would be my first question. The nature of the savings, perhaps you could give some examples also. Secondly, sorry to come back on this topic of the U.S. I hope I heard all your answers on the questions, but I'm still a bit curious.
Normally, I'd say FUCHS is a company that is rather asset-light, at least in the chemical sector, and hence flexibility, operational flexibility should be high. The story in the U.S. seems to be volume-related and not so much price-related. You had some fallout from FX, and I can understand that. I heard what you said, Mr. Fuchs, about having to import some products from Europe, which is currently obviously a burden on the margin. Nevertheless, the decline in the U.S. strikes me as having been very sharp, especially when compared on a sequential basis. I'm just wondering, I mean, especially specialty products, they should be employed by the respective customer. Nonetheless, whether the, let's say, the underlying economy is more, let's say, growing or to a larger than to a lesser extent because those are products which need to be implemented in the respective products of your customer base.
I'm still wondering why, especially in specialty chemicals, this volume growth didn't lead to, let's say, a stabilization of the EBIT margin in Q2, but saw it basically drop by almost 50%. Thank you.
The reason behind the U.S. business is that on your existing sales, we saw a reduction of sales with the same profit base, and therefore, the profit goes down. You add a large volume business, which is not yet a really, you know, profit booster. Mathematically, that's the explanation. You have an existing business, which is down across the board, yeah, because the economy is down, and you add a new business at larger volume, which is not yet fully accretive. I think that's the reason behind.
Okay. Thank you.
Coming to your question, saving questions. I mean, Oliver, apologize if I'm not going into details and call about costs, which cost it is. I mean, we all know we have running costs in the business, and we definitely will push to break there. I don't want to talk about, you know, typically consulting costs or T&Es, etc. It's the typical ones. They will be definitely prolonging into also the next year. We will steer our running costs on the one hand. We have, on the other hand, of course, projects started. You can run full speed, or you can also push here to break in regards to external spends. These are the main topics which we will follow up in the next month.
I think it's also important to mention that we won't do stupid things because we believe in our business model. Time will progress. For example, our transform to grow, where we invest significant money, we will just continue. If we run a cost and acquisition, we will continue. We have lowered our guidance by 6% to a level of 2024, which was an all-time high. We don't want to have all our team panicking around the world, you know, who is next to go. Therefore, we don't run FUCHS in a crisis scenario. We went out ad hoc because this is the parking regulation. As you have seen the share price, it was good that we went out ad hoc. We are not in a crisis mode, and we won't do any stupid things just for the short run.
Very clear. Thank you very much.
Thank you. Dear participants, just a quick reminder, if you wish to ask a question or leave a comment, please press star one, one on your telephone keypad. We are going to take our next question. Just give us a moment. The question comes to the line of Konstantin Wiechert from Baader-Helvea . Your line is open. Please ask your question.
Yeah, hi. Thanks for taking my question. Most answered, one remaining. In the second half, in the savings that you will realize, is there any sort of resolution of bonus provisions that you have already built in the first half included in that, or is that already reversed with the second quarter? Thank you.
Great question. No, there is nothing where we play with accruals, etc. We are talking about savings where we want to put our cost baseline down, and this is how we are driving actually our initiatives, not playing with accruals.
Thanks.
Thank you. We are going to take our next question. It comes to the line of Martin Rödige from Kepler Cheuvreux. Your line is open. Please ask your question.
Sorry, just one clarification question. You have cut your EBIT guidance, but you keep your free cash flow guidance unchanged. Is the reason for that that you expect some net working capital reduction by year end? Thanks.
Mathematically, if you take down your sales, you gain 20% on those reduced sales. Cash flow from reduced sales is not totally to my liking, but probably that's one part of the answer behind.
Rödiger, you answered also by yourself. The networking capital I mentioned in the presentation as well, we are expecting to reduce down further. This is one of the elements which will contribute towards the positive cash.
Thank you.
Thank you. The speakers are under for the questions for today. I would now like to hand the conference over to Esma Saglik for any closing remarks.
Thank you very much. Thanks for the meeting. I think we have here another special topic. Lutz, it's your last conference this time. Again, I would like to thank you for joining. As you all probably know, Lutz will leave the company by the end of September. Just as a side note, we are already in the last stages of our succession planning, and hopefully, the next time, we can announce this person soon. I think, Lutz, that's your stage now. I would like to thank you for all the efforts you have done and for all the good jobs you have done so far. It's a crying eye for me, even though I don't know you for a long time. Nevertheless, I wish you all the best in your new job and your new challenge. I'm sure you will rock it, and you will make it. Thank you very much.
Thank you, Esma and Stefan, for the kind words, which I would like to give back to you. Thank you for the trust and thank you for the very good collaboration that we had. I think we have come a long way, and we have achieved a lot. I'm sure we will stay in touch in the future. Thank you again for that.
I'm also sure, you know, very unhappy to lose you, but we wish you all the best. I'm sure the water is a little bit colder over there. Well done. Thank you very much and really, all the best to you.
Thank you. With this, we have come to the end of today's conference call. If there are any questions left, don't hesitate to contact the IR department. Otherwise, you may now disconnect. Bye-bye.