Good morning, everybody. This is Ingo Middelmenne from the Investor Relations department. I'm happy to welcome you on our first Zoom call for the preliminaries of H1 of Ringmetall. We thought, given the fact that it's hard to see each other these days, it might be interesting for each of you to try it this way, and we'll see how these kind of meetings work out. If you want to raise a question after the presentation of Christoph, I repeat this again, via phone, you have the opportunity to press star nine. That's going to give me a sign that you're raising your hand. Either you can raise your hand in the participant window or just write me in the chat that you want to pose the question, or you just unmute yourself. We could try this as well.
Well, I'm handing this over to Christoph Petri, our CEO, and have a good call.
Thank you, Ingo, and a warm welcome from my side as well. I think it's a good idea to do this Zoom call now instead of holding a normal telephone conference. At least you can see me, you can see Ingo, and maybe in my eyes, you can see my reaction on some questions. We will see. As I said, a warm welcome from my side as well. Yeah. Q2 is over. We reported our figures, our preliminary figures. We are, I would say, quite early compared to the last years. The reason is, we thought, especially due to the COVID-19 crisis, we would like to give our investors a look on the figures and give them a little bit more assurance on what we have said before, that we are still on track regarding the guidance and all of that.
I would like to guide you through the figures a little bit, I would start off with the key financials of the group. Ingo, you share the screen, I think. We have a small presentation, not a big one, but two slides at least we have. The key financials, sales are up 1.1% to EUR 62.4 million. The gross profit, we could raise to EUR 30.5 million. That's up 7%. Actually, the EBITDA, we could raise to EUR 6.4 million. That's an increase of 11.4%. Q2 was, and that was expected, a very challenging quarter. Actually, I think one of the most challenging ones I've ever experienced in the business. Most profit and loss figures are down compared to prior year. However, I would say, overall, we managed the whole business actually still quite well, and we are very happy how we have coped with all the crisis.
Sales in Q2 only were EUR 28.6 million. That's down 10%. I have to say this is very much impacted also from the steel price effect. You see the gross profit we could even raise compared to prior year to EUR 14.4 million, the EBITDA is slightly lower at EUR 2.6 million. If I look on the different business units and regions in the industrial packaging, we saw sales of EUR 26.3 million in Q2. That's down 8%. The steel price effect is - 5.3%. The overall effect on the revenues is heavily impacted by this steel price effect. The effect from acquisitions is + 12%, the volume effect overall for the first half is - 4%. Volumes in Q2 came down quite significantly at around 10%. The rings stand for roughly EUR 22 million, EUR 21.8 million, the liners stand for EUR 4.5 million.
The EBITDA contribution is, rings is EUR 2.8 million and liners is EUR 0.5 million. What I have to say in that respect is that the liner business is usually stronger in the second half of the year due to the fact that especially in bag-in-box systems where we supply, especially to fruit juice manufacturers, they have their season usually in the second half of the year. If I look at the different regions, Germany was significantly weaker in Q2. Sales are down roughly around 15%. Italy is only slightly down and is around -10% in sales in Q2. The U.S. business is, if I only compare the year-on-year figures, actually slightly up, but the reason for that is the acquisition of Sorini. If we take this out, especially in Q2 and in the end of Q2, the U.S. business is significantly weaker at around 20% volume down.
China is actually up, especially compared to last year. We are roughly up 5%, and have currently quite a stable demand situation. Within industrial handling, the business is actually even more challenging. Sales are down 26% to EUR 2.3 million in Q2. The EBITDA contribution is negative, and we have seen a significant hit, especially in the forklift and in the tractor industry. Most of the customers there are on short-time work. We are coping with that now, and that's, I would say, the most difficult segment we currently have. The highlights of Q2 overall and the COVID-19 crisis management we have undertaken, it's, as everyone knows, very challenging in economic environment, a very weak demand, especially from the chemical industry and everyone who is related somehow to the automotive industry.
We were able to somehow balance that a little bit with our footprint in the nutrition or in the food and beverage industry and also in the pharmaceutical industry. Still, the chemical impact, really made it very difficult for us in Q2. Most customers and end markets were on either short-time work or they at least reduced their volumes and capacities significantly. We have adapted to that situation by terminating all temp and lease workers in most of our plants. We have also regionally taken advantage of furlough schemes and short-time working options where appropriate. We have established an efficiency increase program already in Q4 2019, and fortunately, we are now able to grasp the fruits out of that.
We have seen a significant increase in our efficiency, not only due to the reduced lease workers, but also really in our machine parks, we were able to reduce scrap. We were able to make machines more efficient, shift systems more efficient, get rid of any overtime, and that helps us on that side. Another highlight is actually the cash flow situation. Even in Q2, the cash flow was very strong in the first half of 2020. We have an operational cash flow of around EUR 6 million, and the current net debt situation is EUR 14.5 million. The outlook now for 2020. The original guidance still remains in place. However, we see that the revenue target of EUR 125 million-EUR 135 million is actually quite challenging due to the fact that especially the steel prices have come down significantly.
As you all know, our guidance, which we do in the beginning of the year, is based on stable steel prices. Now we see a significant decrease in steel prices, which obviously has an impact on our top line, and therefore it makes it at least challenging to come to the EUR 125 million-EUR 135 million in revenues. As I said, no need to adjust anything on the guidance. We are still quite confident, and what we see is that after a very, very poor June, nearly all P&L figures are going upwards now in July and August, even though it's a summer and holiday month, looks quite promising as well. When I look on the different segments, maybe, we see a recovery in the ring business, as I just said, especially in Europe, not so much in the U.S.
We see that in the U.S., we believe even Q3 will be impacted by the COVID-19. The U.S. business is still around 15%-20% down compared to last year, without Sorini, I have to say. Therefore, we believe that at least up to August, the business will be challenging there. We still have a very positive EBITDA contribution there. We have good margins, so we don't worry too much about that. Usually, the U.S. business is our cash machine, and this cash machine is still generating enough cash, but not that much that we usually expect from the U.S. We also see the inliner business in Europe now picking up slowly, especially our beer tank liners are picking up now. Also the bag-in-box systems will pick up significantly now in Q3.
Therefore this business, especially in Europe, should not only be stable but should increase. The industrial handling segment, however, will continue to be on a slowdown in Q3 and maybe with a slight recovery then from Q4 onwards. The projections which we get from our big customers in that segment is that they remain there short-time work at least until the summer holidays are over, and then maybe starting in September, maybe October, they should slowly get back to normal. Our M&A activities, which we have postponed during the crisis now, we are actually looking again at some smaller acquisitions. All the bigger ones we have postponed until at least next year. We are now in a situation where we feel quite comfortable to at least talk to some smaller targets again and evaluate a potential further acquisition. Maybe this year, maybe at the beginning of next year.
That's something what we will see. We are quite cautious and try to reduce the risk. There are some opportunities now in the market, and we would like to take advantage of that. Finally, our annual shareholders meeting will take place virtually on the 28th of August. We have already sent out the invitations. While doing that, you have seen that we propose a dividend payment of EUR 0.06 per share. Again, that was still in discussion during the last month because we wanted to see how the cash flow situation really will be impacted by COVID-19. Now after the final figures for the first half of the year, we are very confident and we are proposing a dividend payment, as I said, of EUR 0.06 per share. That's it from my side from the report.
Now I would hand over to Ingo and to all of you for our Q&A session.
Yes. Thanks, Christoph. Again, as a reminder, if anybody would like to ask a question, just please raise your hand in the participant window or write me in the chat or on the phone, press star nine. If it all doesn't work for you, just try to unmute your own self. That's fine as well. We've got two questions here with the first one coming from Florian Pfeilschifter from MainFirst.
Yes. Thanks and good morning, everyone. A few questions from my side. I would take them one by one and maybe start with the quite muted outlook from BASF and Henkel. Could you maybe elaborate a bit more how you see this in relation to your business and, especially for the chemicals industry, how do you see the outlook for the second half of the year and potential recovery in 2021?
Well, both BASF and Henkel are quite heavily impacted by the automotive industry, obviously. I haven't looked at their figures in detail, but from what I have read up to now is that the top line will be impacted, but not that significantly. The biggest impact we will see most probably there on the profitability. They think that prices will continue to come down. Volume-wise, we see that the business at BASF, at least where they use drums, should be somehow stable. That's enough for us, actually, to at least anticipate that. We are now continuing to increase our cluster or our exposure in the pharmaceutical and food cluster. Therefore, we are trying to lower our chemical cluster a little bit. We are not that much impacted by that, I would say.
I mean, the second half of a year is usually a weaker half, as we all know, because in Southern Europe, August is a dead month. December is usually at least half a dead month. Therefore our business is weaker in the second half. As I said, we are quite confident even for the chemical industry that the demand should at least be stable.
Okay. Chemical still accounts for roughly 50% of revenues in the packaging business?
Roughly, I would say yes. Maybe now it's slightly less. It has changed a little bit. In the end it's always a definition on what exactly is chemical and what is chemical, which is then maybe part of food and beverage as well. In the ring business, it's roughly 60% is chemicals. In the inliner business, the chemical cluster went down due to the crisis and the food cluster went up.
Okay. Regarding cost-saving measures, especially on the fixed cost side in H1, what share of that would you believe is sustainable? How much of that can you sustain into the future regarding travel expenses, maybe trade fairs as with other companies? Do you think that you can reduce your cost base here in the long term as well?
I would say, if we continue the current run rate, definitely. We all expect that the run rate will go up, and we always try to prepare exactly for this situation by holding a certain percentage of these and temp workers. Those workers are less efficient and mostly also more expensive. Therefore, the efficiency will go down with higher volumes. Therefore, I would say these costs will continue to be there and the inefficiency will most probably go up a little bit. If we are talking about real fixed costs, which we were able to reduce in the crisis, I think we can sustain that. We have now a good picture on what we exactly need and what not. Also on the customer side, we have changed some logistical systems. We have reorganized and restructured some products. We have reallocated them to new plants.
Actually, that's something what the customers appreciate, and what helps us to save costs as well. Just to give you an example, we are now shipping some of our rings, which we were producing in Germany. We are now shipping from the U.K. to Belgium, and the costs to ship them from the U.K. to Belgium is much less than shipping them from Germany. The flexibility of the group, we have proven and we have increased and this is a big advantage also for further remaining these cost saves.
Very good to hear. Thanks. Maybe a last question for now. Overall, your sentiment regarding your business and also your end markets, how has this changed over the last three months? Could you elaborate a little bit more on that?
It was actually quite interesting. In the first quarter, we haven't seen anything of the COVID crisis. Even through April, we were not impacted, I would say not at all, but we were only slightly impacted. Volumes were still very, very good. Then I have to say, especially May and June, and especially June, that were very, very poor months. We are holding a weekly telephone conference, we call it a COVID call, with all of our subsidiaries. I would say starting mid of April, end of April, these calls were going to be more pessimistic. I would say the peak of this pessimism we have reached in late May, maybe early June, because we can always foresee at least two weeks.
We have clearly seen that June was an absolute low and all of our plants have an increase now in July compared to June. That's the reason why I would say that the sentiment is like a hockey stick. It went down quite significantly and now since middle of June, I would say it's going up and July is definitely up. We see that the customer side, they are now reducing their short time work. We see that the overall economy is at least slowly picking up.
Perfect. Thanks a lot. I would jump back to the queue.
Great. Thanks, Florian. Next we have a question from the chat room. Can you provide us with sales numbers for rings and inliners in H1 2019, please? Not this year, but last year.
For sales numbers?
Yeah. At least the percentage, maybe. Maybe that would help the caller. We don't really publish sales figures for these single divisions. We will probably do that next year. Maybe you have a percentage of the last year's splits between rings and inliners.
Last year?
Yeah.
Okay. Well, last year, just keep in mind that Tesseraux was not included in the first half of 2019. These figures, it's difficult to really compare like for like. Revenue-wise, in the first half, in the packaging side, we are down 10%. We are around EUR 28.6 million and we have been around EUR 30 million, just EUR 30.3 million, I think, in the first half. No, sorry. This is Q2. You are asking about?
H1.
H1?
First half year.
2019.
Yes.
You are asking about the volumes or you are asking about the sales?
Sales numbers. I would just say a rough sales split. That would probably.
That's in the report of last year. We are down in sales. I think, no, we are not down. We are up in sales. Tesseraux stands for roughly EUR 4.5 million in sales in the first half. If you deduct that from the first half-year figures of 2020, we are at EUR 58 million, roughly. EUR 57.5, EUR 58 million. That's around the revenues or the sales we have done in H1 2019.
Okay, great. If this person has another question or would like to specify that.
The detailed figures are in the report, actually.
Yes. You just posted the initial, Mr. WF, so maybe you just send me another email if you need more clarification on that. Next we have a caller from a mobile phone where I also can't see the name. The phone number ends with 637. I will now put your audio on. Yes, please go ahead.
Hi, Mr. Petri. Hope you're doing well. It's Cansu Tatar from Warburg Research. I have two questions, please. Firstly, could you please talk about the current order book? What are you seeing in terms of order momentum in a different segment? What makes you confident that you are going to achieve the required pickup in sales of H2 to meet the lower end of the full year 2020 guidance? You mentioned that you are expecting that especially bag-in-box systems should significantly pick up in Q3. Can you remind us, or can you tell us the reason for that? Secondly, could you please provide us an idea of what supported free cash flow in H1 and to which extent the strong free cash flow will be sustainable in H2? That's it.
There were many questions. I didn't write all of them down, but I hope I can remember all of them. The order book looks in the different segments, starting with the worst one in industrial handling, looks actually quite poor, even for Q3 2020. We believe that it will continue to be down roughly 15%-20% in Q3. In industrial packaging, when I look at the liners, the order book looks actually very, very good. We have a significant increase in confirmed orders now, especially in the bag-in-box systems. Maybe to comment on that question as well. The bag-in-box systems we supply are usually either used in the food industry and especially in the juice industry for apple juice.
We are not supplying that much in the wine segment, but we are supplying in especially juice and also now in the meantime to the dairy industry, so milk producers and all of that. The focus now on these juice manufacturers, those are usually smaller manufacturers where you get a better margin and you need to be a little bit more flexible, and that's what we can offer to our customers. That's why we have a certain seasonality in this field. Yeah, the order book looks actually very, very good in the inliner business. Also at Nittel, the beer tank liners are increasing. We see still a very weak demand in our form inliners. The form inliners are mainly used in the chemical industry, and especially outside Germany like U.K. and France.
There it continues to be very weak, the rest actually, the demand situation is picking up. The Ringmetall business, we don't have a huge order backlog, as you know. Therefore it's difficult to comment on that too much. We see a clear increase already in July. August is a typical holiday month now. It is difficult to comment on August, but the figures are pretty much now stable. That overall is the reason why we are quite confident also to reach our guidance. First of all, the operational business is running quite stable. We have proven that we were able to implement price increases with our customers. We have currently a very good situation on the steel market, which is in favor of us, not on the top line, but on the gross profit.
The situation in the inliner business makes us quite confident to reach the guidance in 2020. What we haven't accounted for is any extraordinary effects we are participating in certain schemes or certain programs, like in the U.S., where we are participating in a program which was launched by the government. The situation there is, if we don't get rid of our permanent employees, or if we don't reduce our payroll over a certain period, we are eligible not only for a loan, because this loan we have been granted already, but most probably this loan will be forgiven, which has then an extraordinary effect on our P&L and on our profitability. That's something what we have done, we haven't accounted for that in our guidance yet.
Regarding your free cash flow, can you give us there an idea of what supported?
Oh, sorry. You go ahead.
Yeah. Can you give us an idea of what supported the strong cash flow and, I think the free cash flow was also strong in H1, and to which extent the strong free cash flow will be sustainable in H2?
Well, first of all, the cash flow in Q1 actually was negatively impacted by the fact that with some customers, especially in the ring business, we have increased their prices and we have changed their payment terms. We are not accepting any early payment discounts anymore. What happened was, we were able to achieve higher prices, but with a longer payment term. Therefore, Q1 was negatively impacted because our working capital increased, because the receivables increased. That's a one-time effect. Now over Q2, this has slowly come down to a normal basis again, and the operational cash flow, as I have mentioned it, is around EUR 6 million, and the free cash flow will be, or is around EUR 5.2 million. We haven't invested that much up to now, because most of our, w ell, first of all, we have postponed some of our investments, especially abroad.
The major investments for this year are in Germany, especially in the ring business. We have the new machine generation, we call it the ring former. This will be installed in the second half. Also in the liner business, we have a major upgrade of our beer tank liner machine. This will also be taken out in the second half. First of all, the operational cash flow situation in H2 is usually a little bit lower than it is in H1. However, we don't have that much of a seasonality in our business. Therefore, we can be very confident to keep this high cash flow. There are no extraordinary expenses expected. The free cash flow will only be impacted by the investments. We have paid out or paid down our debt. That's something what we continuously do.
We had a bigger repayment in May, and we will have another repayment in December, and we are very well prepared for that.
Thank you very much. Back to you.
Great. Thanks, Cansu. Next we have another question from the chat room. If we could break down the EBITDA down to the net result for H1 2020 and the full year 2020, at least as an indication to saying where will the financial result be, where will depreciations be? I think the second question on the cash flow we just answered. The next question would just be a bit more of an outlook to 2020. Will a further increase in EBITDA be possible? How we see our midterm perspective from the current status. Will we grow towards these 200 or rather not?
Okay. I would start with the last question, actually. The midterm projection. We have postponed the major M&A activities now, which doesn't mean that we are not focusing on the long-term growth of the company. I would say the whole momentum has just paused and is however, still in place. We are still focusing on major acquisitions. We are still concentrating on that and really following these targets very closely. In the current environment, it doesn't really make sense to really execute a bigger transaction now. We believe the risk is just too high. If I talk about postponing this guidance of EUR 200 million in revenues, we've always and very clearly expressed that it is not the EUR 200 million which trigger us. It is the long-term perspective and the understanding that we will grow, especially through acquisitions. This hasn't changed at all.
As I said, it's just a pause in this process and we will continue our track record in that respect. It's a postponement and it's not giving up our view or our vision on the group. The next question was.
Of the first question.
Sorry?
The breakdown of the EBITDA down to the net result, what we can expect for H1 and the full year, roughly.
Okay. Well, the financial results in the first half is around EUR -800,000. We haven't calculated a tax figure yet, or a tax percentage. The final figures we will publish in September then, therefore, I would like to ask to bear with me until we give any comment on that, because this is something we are still working on. We don't have the final figures yet. That's why we published the preliminaries, therefore, the final figures then will come in September.
Okay, great. The next question comes from Montega. I assume it's Patrick Speck. Patrick, you're now online.
Yes. Hello, good morning. Can you hear me?
Yes.
Thanks. I have two questions. The first one is on the inliner business again. Could you please share with us your information, or give us some insights on the organic development of this segment or this business, in the current crisis? Without the inorganic effect of Tesseraux. How did, for example, Nittel perform in the current situation?
Nittel didn't grow much in the first half. Actually, I think it even reduced its volumes slightly. This is not due to the fact that the demand situation has changed. This is especially due to the situation that our capacity situation has changed. If I may remind, in end of March and especially then April and May, we had a sickness rate of around 25%. Therefore, our capacities were heavily impacted, and we were not able to supply all the goods to the customers in time. By the way, which is quite normal for Nittel. It's very different to the order situation in the Ring business. The cycle is much longer. We usually have a much bigger order backlog and the lead time is usually more around 6- 12 weeks instead of two weeks in the Ring business.
The Nittel business did not grow in the first half of 2020. There was a negative of, I would reckon around 5%. The Tesseraux business actually grew in the first half compared to prior year. The reason for that is we have tried to leverage our bag-in-box business more into the dairy industry. We are now supplying more and more into the milk producers and yogurt and all of that. They have no seasonality, so we were able to supply more in this region in the first half.
A quick follow-up on that. Do you expect some catch-up effects in the third quarter now?
No, we don't really expect catch-up effects in Nittel. What we see that the product mix will change now slightly. Well, we will see some catch-up effects maybe in the beer tank liners, but we will not see any catch-up effects in the round bottom liners or in the form inliners. We still have these orders and we are working on that and especially the foreign markets like U.K. and France, they are significantly down actually. Therefore, we don't expect any catch-up effects in that region.
My third question would be on seasonality. You mentioned that the second half of the year usually is the weaker one. Keeping in mind that the second quarter was hit hardest by the current crisis, do you see the figures for Q3 coming in with everything you see from now on, coming in higher than in the second quarter, even though the seasonality is against you?
We haven't actually consolidated all of our subsidiaries yet because actually just last week we have done the latest forecast on that. The expectation is July was definitely up compared to June. August is always quite a weak month. Basically, I would expect that Q3 is pretty much most probably on the level of Q2, maybe a little bit better, but not as good as Q1 was.
Very clear. Thank you.
Thank you, Patrick, for your questions. We have another question from Florian Pfeilschifter from MainFirst. Florian, please go ahead.
Yes. Thanks for taking my follow-up questions. Two rather short ones on how the integration is progressing, especially on Sorini. Is this already concluded in the U.S., or has this then something to do with the program you're participating in the U.S.? Similarly for the Tesseraux deal you did last year, how is the integration progressing there, and whether you already could seize some of the margin potential you were expecting?
Well, I would start with Sorini. Sorini is now fully integrated, and all IT systems installed, well, all the financials, as it was an asset deal, are being made centrally in Birmingham through Self Industries. Therefore, the integration process was, I would say, quite smooth. The team in the U.S. did a great job, actually. We have the advantage that our CEO in the U.S. is a CPA, so a former auditor as well. He's a very experienced financial guy, and he did a great job on integrating now Sorini into the group. On the operational level, we were finally not able to really take advantage of all the potential savings we could reach due to COVID-19, because we did not consolidate our plants there. We are now in the situation of actually even rethinking that.
However, the contribution and the performance of Sorini is better than expected and better than it was in our business case. We currently see that it makes more sense to do maybe some smaller adjustments there, and reallocate only a few ring types, and this will help already or this helped already to save some costs. Now it's, I would say, more to the situation that we need to wait in the United States a little bit until the whole economic environment calms down a bit. With Sorini, keeping in mind, they were mostly serving the reconditioning industry, and the reconditioning industry in the U.S. is heavily down due to COVID-19. Therefore, Sorini is suffering.
As I said, we have reallocated some ring types, and we have upgraded some machines over there, so they are now able to produce on the behalf of the Birmingham plant and supply the Chicago region, and that works quite well. In Tesseraux, we see improvements, absolutely. I would say from the operational side, we are much further or we are much better off than, let's say, on the financial side and all of that. In Tesseraux, we still are running the old ERP system. We have no full integration yet. We need to see that we most probably need to upgrade the financial department there a little bit. It's more of a cultural thing to change the culture of the people there a little bit, that they acknowledge they are now part of a bigger group and especially a stock-listed group.
That's not so easy as we can currently see. Therefore, as I said, operationally, it works very well. We have a great exchange between Nittel and Tesseraux. We have a combined sales team now. We have a combined quality team. We are now sourcing some items together. Therefore, that actually helps quite a lot, and we see some effects there already.
Great. Thanks a lot and have a great day.
Thank you.
Thanks, Florian. I think that's it for the questions so far. Again, if you have further questions via phone, please press star nine. Raise your hand in the participant window or write something in the chat room. Looks like there are no further questions. From my side, thank you. I hand it back to Christoph for the final words.
No final words from my side, only thank you for participating. I hope that at least some of you I will see or hear in our annual meeting, in the shareholders meeting on the 28th August. Up till then, thank you very much and all the best.
Thank you. Bye-bye.