At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity for the analysts of Fuchs to ask questions. May I now hand you over to Lutz Akerman, Udi 2Q's conference. Please go ahead, sir.
Yes. Good afternoon, ladies and gentlemen. This is Luz Ackermann speaking. On behalf of Fuchs Petaloup, I would like to wish you a very warm welcome to today's conference call on the half year figures. As always, all the relevant documents have been uploaded on our IR section on our homepage this morning.
And with me on the call today is Dagmar Steinhardt. Dagmar will run you through the presentation in a second, which is then followed by a Q and
A session.
Yes. Dagmar, I would like to hand over to you. And please go ahead.
Thank you, Luz. A warm welcome from my side as well, And thank you for joining us today. I will start with chart number 2, our highlights chart for the first half 2021. As you can see, after a strong start to the year, our business performed well again in the Q2. Overall, we generated sales of €1,400,000,000 and that's 26% above Prior year, our earnings, our EBIT increased disproportionately by 71% to €191,000,000 This sales growth It's strongly driven from the automotive industry in China.
In the Q2, first price increases are implemented. And what's very important, our sales and EBIT in the first half twenty twenty one It's also above the prior crisis year 2019. The supply chain situation continues to be tense And there is no relief being for the next month. Anyhow, based on these positive business developments In the 1st 6 months, we are more optimistic in our view into the second half of this year and we raised our outlook. Our sales, we expect to come in at the upper end of the range of €2,700,000,000 to €2,800,000,000 Our EBIT range will increase to €350,000,000 to €360,000,000 And of course, our Fuchs value added, our most important KPI increased And we see it for the full year 2021 around €200,000,000 Now I would like to turn to chart number 3, our sales development by quarters.
As you can see, our Q1 2021 and our Q2 2021 are both above All quarters of the free price this year 2019. As already mentioned, in the 2nd quarter, we've seen 1st price increases compared to the Q1 and that's The reason for the increase. Coming to the next chart, the Quarterly EBIT Development, Chart number 4. This follows, of course, the development of the sales. And you see our quarterly earnings in 2021 are Above the quarter 2019 and of course, you see the impact of the crisis in 2020 With this very weak second quarter, our Q3 Q4 and the previous year, Which contains a one off compensation.
So the level of our earnings in 21 is still on a high level, but you can see in our second quarter that our margin is Sequentially weaker due to higher raw material prices. With that, I would like to turn Your attention to chart number 5, our group sales. We see an organic growth of 27% or 3 0 €7,000,000 compared with the first half twenty nineteen, we have an increase of 9%. The external growth is due to acquisitions in 2020 in North America And the negative currency effects are mainly due to Americas. We see on the one hand a weak U.
S. Dollar And of course, high inflation in the South American countries. These Sales increase or significant year on year upturn is volume driven. And we have in all regions Higher sales. But of course, most dynamic in Asia Pacific, mainly China.
On the next chart, number 6, our net operating working capital, you see Quite a high number for our net operating working capital of €624,000,000 or 21 point 8 percentage points in relation to annual sales of the last quarter. It's an impact of the high volume in sales and of course on this increased raw material prices And there are of course these growth effects push our inventory as well as trade receivables. And of course, this increase in net operating working capital is a timely Yes. Issue that a lot impacts our cash flow. But before I come to the cash flow, I will give you an overview about our earnings starting with Page number 7 for the full group.
With these strong sales growth, we improved our gross profit by 27% or Over €100,000,000 and it comes in at €497,000,000 We reported gross margin of 35.2% in the first half of this year. This is 0.4 percentage points above the last half year. Looking into the quarters, We see in the Q2 this year with a margin of 32.9%, a margin which is 2.7 percentage points lower than in the Q1 of this year, of course, due to the Increasing raw material prices. Looking at the other functions costs, We see an increase as well, but it's under proportional compared with the gross profit, And it's mainly driven by higher selling expenses. And therefore, our EBIT It's up by 71% year on year and our EBIT margin is 13.5 percentage points after 10% in the last year.
Our CapEx is lower, Yes, more or less nearly half. But as you know, we finished our big CapEx program in the last Yes. With that, I would like to come to the region starting with Europe, Middle East, Africa on Page 8. As you can see, sales are up above 20%. And but the last year, of course, Was it hard by the pandemic?
Compared to 2019, the year before the pandemic, Sales are 6% higher. We have seen in almost all countries in this region High double digit growth rate. Above average rises in South Africa and Russia as well as France, Spain and Italy. The weak Eastern European currencies, of course, have an Impact on our sales as well. Due to these growth rates in sales, We have significant growth in earnings in almost all countries also compared to the first half of twenty nineteen.
On the next page, on Page 9, you see the region Asia Pacific. There the last year was less impacted from Corona compared with the other regions, but on the other hand, we have a high dynamic demand In Asia Pacific, especially in China, which remains to benefit from strong demand of the automotive sector. In the first half, sales are up by 36% And 19% up on the fleet prices level in the first half of twenty nineteen. Looking at, yes, the earnings on the EBIT, we see a significant earnings growth in almost all countries, But of course, highest actually growth in China, of course, which is dominating On the next page, number 10, the region North and South America as well reports Higher sales compared to previous year and higher sales compared to 2019. But of course, we have to keep in mind that in 2020, we had the acquisition in North America of 9.
Looking at the earnings, North America doubled earnings compared with the previous year, But this was highly impacted by the debt as well as pandemic. We've seen as well Quite a considerable recovery in all South American countries, which in the last year have been hit Very hard by Corona. On the next page, on Page 11, you see The development of raw material price increases in 2021 as this is for us Yes, something we've never seen in this, yes, impact before and which of course affects our business. As you can see, in Europe and America, somehow the Increases seem to stabilize a bit, but of course, remain on a high level. We still expect margin pressure to continue in the second half of the 1 year.
And of course, We are ongoing increasing our selling prices and try to mitigate the margin With that, I would like to come to our outlook to page number 12. And as already mentioned, due to the strong first half year, we Yes, rise our expectations and are more optimistic regarding the second half of this year. And we expect Our sales to be at the upper end of the range of €2,700,000,000 to €2,800,000,000 Our EBIT range, we increased to a range of €350,000,000 to €360,000,000 And that of course, impacts our positive impacts our books value added, Which we see around €200,000,000 Our expectations for free cash flow before acquisitions It stays around €110,000,000 and there you have to keep in mind, of course, that the Strong demand as well as the increasing raw material prices Impact net operating working capital, where we've seen in the cash flow statement Already a high number. With that, I would like to come To a large chart for the outlook for the cash flow, because I know that It might be harder to understand and therefore we put this chart in our presentation There you see a bridge to give you explanations from the free cash flow before acquisitions from 2020 To the free cash flow before acquisitions for the running year, which we expect to come in at €110,000,000 Of course, we will have compared with 2020 a positive impact from our earnings after tax.
We will additionally have a positive impact from Our lower CapEx as we spent around €80,000,000 in In 2021 and in 2020, we spent EUR 122,000,000 And now I will come to the net operating working capital where you see quite a big Negative impact. On the one hand, you have to keep in mind in 2020, we had a cash inflow Of yen 34,000,000 as we had less business overall. And in the running year, due to the high demand and price increases, We have to build up net operating working capital, so there is a swing. And then with other changes, we have another swing. In the last year, in 2020, We had everybody reduced advanced payments for taxes.
And At the end of the year, we came out better than originally expected. Therefore, we had to pay we had In 2020, in December, we had higher tax liability, which is of course positive for cash flow. And in the year 2021, of course, we have to the cash out of these tax liabilities. In addition, we have higher advanced tax payments in 2021 for the year. And therefore, of course, we have there Like, turnaround again.
In 2020, there was a cash inflow from others of 25 And in 2021, there will be outflow. And these both things are the Reason why our cash flow is just around €110,000,000 in the running year. I hope that, that explanation gives you a better feeling on that number. And with that, I would like to close the short presentation and would like to answer your questions.
Okay. Please, operator, take over for the moderation of the Q and A session.
Thank you. We will now begin our question and answer Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial The first question is by Markus Mayer of Baader Bank.
Yes. Good morning. Two questions, if I may. The first one is on the volume or the split of the organic growth in the first half, volumes versus price That's the expected split in the second half. Is my assumption right that the first half organic growth mainly was volume driven?
And then Potentially in the second half, there will be a significant price effect on the organic growth, but more flavor on this would be Of interest. And then I will ask my second question afterwards.
Okay. Thank you for your question. Well, if you compare the first half twenty twenty one with the first half twenty twenty, You're absolutely right. That's volume driven. If I look on a quarterly basis in the Q1 2021, it still was volume driven.
And now in the second quarter, Compared the Q2 to the Q1 2021, we already see Yes, effect from price increases.
But how big have been these price effects sequentially? So really significant or will it in particular didn't kick in, in the Q3 and the Q4?
Well, We see the 2nd quarter in sales is €17,000,000 above the Q1 of this year and That is price driven.
Okay. Understand. Good. And my second question would then several questions in one question, but it's circling around the M2 plant fire at your U. S.
Competitor and also partly additive supplier, Lubrizol. The question would be or the questions would be, How do you think this will impact you? And how if you have that chance to gain market share in the U. S.-grease market? And my assumption of that luprisol has roughly 30% market share at U.
S. Creases from this plant That's correct. And also where your CREES plant in Chicago is currently capacitization. Can you Basically, stepping to this lack of current capacities, all kind of flavors and tests would be quite interesting.
The answer the short answer is yes. We will benefit. We don't know to which extent. I mean the yes, it was the fire in the U. S.
Where The tech tool side totally burned And we already see customers from Chemtool approaching us To get products from us and we expect that it will take At least until 2 years until everything is built up again. And Of course, 1 or the other products will be Produced not by us, but I guess from Tollblender because that is quite common in the U. S. But we expect, of course, or we will try to have a positive effect out of that.
And as a question, the capacity utilization of your Chicago plant, is this already at full capacity or you still have ample capacity to also Serve then the additional LUPESO customers.
We still have additional capacity to serve that customers, So there won't be any capacity restraints regarding that.
Okay. Very good. And also the new Plant in Germany the new Greece plant in Germany is also up and running meanwhile?
It's up and running. We started production, I think, Half a year or something around that ago. And yes, it's running. But it's a different kind of greases as it's in Germany, it's polyurea greases. And in Chicago, in Harvey, we are more producing squeezes with lithium.
Okay. And just a last question on this and then I really thank you for all the answers. The customers of LUPITZOL, are they I guess they are mainly in the industrial manufacturing field where also then The approvals for the Greece are less severe than they are for Automotive. Is this correct?
This is correct. You are quite familiar with the market, yes.
Okay. Thank you so much. And see you soon then in September in our conference.
Yes. Looking forward to that.
The next question is by Martin Roediger of Kepler Cheuvreux.
Hello. Good afternoon, Mr. Steinert. Good afternoon, Lutz. I have also a few questions, and I would also like to ask them 1 by 1.
Did the strong momentum you may have seen also at the end of Q2 continue at the beginning of Q3? So I would like to know what Does your order book tell you for right now July, August and so that we can flavor on Did the demand momentum continue?
Well, as you know, like we have a very short visibility And therefore, order backlog doesn't really play a role for us. But of course, it gives us visibility for Fixed situation because on the one hand, of course, we still see good demand. On the other hand, regarding the automotive industry and the shortage of semiconductor and so on, there are more Plans closed from customers and of course we expect In the Q3, therefore, somehow less demand from that side. But today, we don't really have that much visibility.
Okay.
Another question on the raw material price inflation, which you also show in your charts, but your Q2 results have been quite well and the burden appears to be less worse than feared. Is it also partly because of accounting? So sometimes we know from other companies booking of raw materials first in, first out? Or is it An average pricing of the input cost so that the bigger effect from the raw material price inflation is due to come in the 3rd quarter.
We use for accounting for raw material prices, the average prices and that is the reason why I said in the last conference Carl, that the Q1 is not really impacted from that much from increasing raw material prices and of Of course, increasing selling prices are from our side. And in the Q2, we see both. We see starting The effect from our price increases and on the other hand, as mentioned with the Lower gross margin in the Q2 compared with the Q1 that is the raw material price increase impact As well. Therefore, we will have the main negative impact From that in the second and in the third quarter and our price increases, which we already implemented, I've seen partly in the second quarter. We will see, of And more in the Q3, but you will see as well higher raw material prices in the Q3.
And, yes. So it's you're right. It always comes into P and L with some time lag.
And the final question from my side is, did you already also benefit from a better mix In the Q2, because we see right now, our board of companies also changing the mix So if there are product portfolio more selling SUVs and electric cars and less of all the bread and butter cars or the smaller cars, so Has that been also favorable for you in your mix in your portfolio?
Well, we always have, of course, a bit of Impact from product mix quarter by quarter, but in the second quarter compared with the first quarter, There is no big impact from a product mix. It's just volume driven That it is better than originally expected.
Okay. Thanks a lot.
You're welcome.
The next question is by Sebastian Bray of Berenberg.
I have 2, please. The first is on levels of absolute volume sales at Fuchs. Now relative to last time, earnings were peaking around 2017, 2018 time. How are volumes now relative to the 2017, 2018 period? I'm just trying to get an idea for What exactly has happened to the profitability per tonne, 3 to 4 years?
And my second question is on the CapEx outlook. How where relative to your initial expectations Are you in terms of capacity utilization? And if demand remains strong, when exactly do you think you'd need to go
Sebastian, I will start with your second question with the CapEx. As we finished our big investment program or initiative, which was Not only adding capacity, it was modernizing, increasing efficiency, Somehow implementing a certain level of operations within the group. And with the year 2021, 1 year earlier than originally expected, we are back to Levels of amortization depreciation, around €80,000,000 And this gives us enough room for smaller, medium sized project Besides maintenance and everything and therefore even if we Need to add capacity, we won't exceed material this level of CapEx And you won't see such a CapEx program again because there is enough room in our CapEx budget. And of course, looking at capacity As we produce in batches, we could quite easily Increased batches, therefore, increased somehow capacity. And even if demand remains Years at that level, we wouldn't run out of capacity.
Coming to your second to your first question, which I'll answer as the second question About profitability per tonne, we don't give that information as It is always it is very simple to say that's the volume, that's the profitability, but then you have To get very deep into it, like looking at products, product groups and these kind of information, We are not willing to give them or to make it public because that would give competitors Information how we do our pricing and everything. And as you know That there is this ongoing trend towards lower volume lubricants. And so just looking at the volume doesn't necessarily mean that if there is The same level of volume or less volume that it is that's a decreased business. But anyhow, we increased our volume. That information, Of course, I can give you.
And if you, for instance, look at the year 2020, besides the prices, Where we bought NICE, this very specialized lubricant company in North America, And they are highly profitable and but they produce extremely Low volume products. So we added to our group some profitability, but hardly added any volume. So even there, it would be somehow misleading. And yes, I hope You understand that we don't give more information on that side.
Of course, that's helpful. Then If I may extend that, is there any reason why you think Fuchs in the longer term would not be able to return To the levels of profitability that we saw in 2017, leaving aside the current increase in raw material prices.
No, no. Medium, long term, we should definitely come back to, yes, already seen profitability levels, yes.
That's helpful. Thank you for taking my questions.
The next question is by Isha Sharma of Stifel.
Hi, good afternoon. Thank you for taking my questions. I just actually have one left now. On the Raw material cost inflation in the past, whenever there was an uptick, and I do appreciate that you have not seen something as drastic as this time. However, we have seen a fluctuation of close to 100 to 150 bps from 1 quarter to another in your profitability.
I do understand that it might take a little bit of time, because that shows in your P and L. But are there other Costs are the reasons for OpEx to be higher than in the past that we might not see a quicker Recovery and profitability or is it fair to assume that when the prices stabilize, the raw material costs stabilize and you will be able to Swing back the profitability pretty fast.
Thank you for your question, Isha. Well, If raw material price increases stabilize, then of course, it's just a question of Sorry for some months that we will come back to better margins. There's always this time lag, of course, 3 to 6 months. On the OpEx side, what we face today is, of course, besides Higher selling costs due to the strong demand, we have significantly higher cost of freight As logistic costs are increasing sharply And it's somehow sometimes even difficult to get containers, flight Then of course, for instance, in Germany due to the High water, streets are disturbed and trains are not running. So There's quite a sharp increase in logistic costs and that of course drives OpEx.
Looking at OpEx in total, These two areas are the main increases. I mean, what will be ongoing, But that's already in the numbers is cost for IT As we as well as other companies go more for like software as a service, which you see directly in OpEx And not in CapEx.
That's very helpful. Thank you so much.
You're welcome.
The next question is by Eleanor Sardon of UBS.
Hi there. Afternoon. Thanks for taking my question. I've actually got a couple if there's time. So the first one is just around demand trends in the auto market.
We've brushed on it. But I'd be interested to know Globally on a more evaluation that way. So for example, we know APAC is strong, but if you could talk about activity between APAC and EMEA, that would be Really helpful. And I'll yes, go to the next one after you've dealt with that one.
I'm not sure if I got your question right. You want to have more insights on the automotive industry in APAC
Or More in EMEA and North and the Americas. So I think general understanding is APAC is strong. If you have more comments beyond that, then obviously, Feel free to
add. Yes. No, APAC is strong as you said, but as well as like Europe, Germany and even America, but you have to take into account our activities in North America Regarding automotive industry are not that big. And for our business and our customers, we see there A good demand and it's performing well.
Okay, brilliant. And then turning to CapEx. Obviously, you've guided for all previous comments around €1,000,000,000 I think I roughly in line with depreciation. It doesn't it seems like you're tracking a little bit lower than that at the moment. Is there a lot more Spending to come in the second half or if some projects perhaps being pushed a little bit into next year?
We haven't pushed anything into the It should come in the second half. But of course, it's always a question some of them might be Shifts or delays, but not because we shifted, but maybe that there are materials are not available or Too long delivery times for some machinery or technical equipment, but no shifts or delays from our side.
Great. Of course. Thanks. And then last little one was we were just talking about well, you were just talking About the freight challenges, for example, in Germany, you had any communication from those providers kind of how long they expect that disruption might continue or when they expect My question might continue or when they expect to be back to business as normal.
No, we don't have it. Of course, it's different from like Yes, company to company or any operation. And we are really lucky As we as a group are not direct affected and it's just like Indirect through maybe logistic. So for instance, in our plant in Germany, We get less material via rail as there are disruptions On the Railways, but I don't know how long this will take. So are there more there's more done by truck, Just as an example.
Great. That makes sense. Thanks so much, Daryl.
You're welcome.
There are no further questions at this time, so I hand back to Luz Ackermann for closing remarks.
Don't hesitate to contact us. Otherwise, we see us at the next conference call, which takes place on 29th October. And until then, stay safe and have a nice day. Bye bye.
Thank you very much. Bye bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.