Earnings Call: H1 2020

Aug 6, 2020

Quarterly report

So good morning, everybody. This is Ingo Mittelman from the Investor Relations department. I'm happy to welcome you on our first Zoom call for the preliminaries of H1 of Ringmatalle. 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 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 9. That's going to give me a sign that you're raising your hand. Or either you can raise your hand in the participant window or just write me in the chat that you want to post a question or you just unmute yourself, we could try this as well. Well, now then, 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. So 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. But as I said, a warm welcome from my side as well. Yes, Q2 is over. We reported our figures, our preliminary figures. We are, I would say, quite early compared to the last years. And the reason is we thought especially due to the COVID-nineteen crisis, we'd 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. And I would like to guide you through the figures a little bit, and 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 2 slides at least we have. And the key financials sales are up 1.1 percent to EUR 62,400,000 The gross profit, we could raise to EUR 30,500,000 that's up 7% and actually the EBITDA we could raise to €6,400,000 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. And 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, very happy how we have coped with all the crisis. Sales in Q2 only were CHF 28,600,000 that's down 10%. However, I have to say this is very, very much impacted also from the steel price effect. You see the gross profit we could even raise compared to prior year to €14,400,000 and the EBITDA is slightly lower at €2,600,000 If I look on the different business units and regions in the Industrial Packaging, we see or we saw sales of 26 €300,000 in Q2. That's down 8%. However, the steel price effect is minus 5.3%. So the overall effect on the revenues is heavily impacted by this deal price effect. The effect from acquisitions is +12 percent and the volume effect overall for the first half is -4%. So volumes in Q2 came down quite significantly at around 10%. The rings stand for roughly €22,000,000 21.8 euros and the liners stand for €4,500,000 The EBITDA contribution is Rings is €2,800,000 and liners is €500,000 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 back end 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 minus 10% in sales in Q2. And 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 Serenity. 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 €2,300,000 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. So we have 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-nineteen crisis management we have undertaken, It's as everyone knows a very challenging 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, food and beverage industry and also in the pharmaceutical industry. But 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. And we have adopted 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 term working options where appropriate. And we have increased we have established an efficiency increase program already in Q4 2019. And fortunately, we are now able to grasp the fruits out of that and we have seen a significant increase in our efficiency, not only due to the reduced leased workers, but also really in our machine parts, we were able to reduce scrap. We were able to reduce or actually to make machines more efficient, shift systems more efficient, get rid of any overtime and that's helped 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 twenty twenty. We have an operational cash flow of around €6,000,000 and the current net debt situation is €14,500,000 The outlook now for 2020, the original guidance still remains in place. However, we see that the revenue target of €125,000,000 to €135,000,000 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. And 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 125,000,000 to EUR135,000,000. But 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 and L figures are going upwards now in July 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-nineteen and the U. S. Business is still around 15% to 20% down compared to last year without Sarene, I have to say. And 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. But usually the AS business is our cash machine and this cash machine is still generating enough cash, but not that much that we usually expect from the We also see the in liner business in Europe now picking up slowly, especially our beer tank liners are picking up now and also the bag in box systems will pick up significantly now in Q3. And 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 their short term work at least until the holidays, the summer holidays are over and then maybe starting in September, maybe October, they should slowly get back to normal. Our M and 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. But 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 end at the beginning of next year. That's something what we will see. We are quite cautious and try to reduce the risk. But there are some opportunities now in the market and we would like to take advantage of that. And then finally, our annual shareholders meeting will take place virtually on the 28th August and we have already sent out the invitations. And while doing that, you have seen that we propose a dividend payment of €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-nineteen. And 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 €0.06 per share. That's it from my side from the report. And now I would hand over to Ingo and to all of you for a Q and A session. Yes. Thanks, Christoph. So 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 9. Or just if it all doesn't work for you, just try to unmute your own self. That's fine as well. So we've got two questions here with the first one coming from Florian Pfalchifter from MainFirst. Yes. Thanks and good morning, everyone. A few questions from my side. I would take them 1 by 1. 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 yes, 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. And 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 most or the biggest impact we will see most probably there on the profitability. They think that prices will continue to come down. But volume wise, we see that the business at BASF at least where they use drums should be somehow stable. And that's enough for us actually to at least anticipate that. And we are now continuing to increase our cluster in the our exposure in the Pharmaceutical and Foods cluster. And therefore, we are trying to lower our chemical cluster a little bit. We are not that much impacted by that, I would say. And I mean, the second half of the 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, and therefore, our business is weaker in the second half. But yes, but as I said, we are quite confident even for the chemical industry that the demand should at least be stable. Okay. So but 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. And 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. But in the ring business, it's roughly 60% is chemicals. In the in liner business, the chemical cluster went down due to the crisis and the food cluster went up. Okay. And then regarding cost saving measures, especially on the fixed cost side, I mean, H1, what share of that would you believe is sustainable? And also, 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 basically, if we say if we continue the current run rate, definitely. But I mean, 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 leased and temp workers. And those workers are less efficient and mostly also more expensive. And therefore, the efficiency will go down with higher volumes. And 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. And 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. And actually, that's something what their 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 UK to Belgium and the costs to ship them from the UK to Belgium is much less than shipping them from Germany. And so 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. Maybe a last question for now. Overall, the sentiment compared or your sentiment regarding your business and also your end markets? How has this changed over the last 3 months? Could you elaborate a little bit more on that? It was actually quite interesting. I mean, in the Q1, we haven't seen anything of the COVID crisis. And 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. And then I have to say, especially May June and especially June that were very, very poor. And we are holding a weekly telephone conference, we call it a COVID call, with all of our subsidiaries. And I would say starting mid of April, end of April, these calls were going to be more pessimistic. And I would say the peak of this pessimism we have reached in late May, maybe early June, because we can always foresee at least 2 weeks. And we have clearly seen that June was an absolute low and all of our plants have an increase now in July compared to June. And 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. Okay. Thanks a lot. And I will jump back to the queue. Great. Thanks, Julian. So next, we have a question from the chat room. Can you provide us with sales numbers for rings and inliners in H1 2019, please? So not this year, but last year. For sales numbers? Yes. I mean, at least a percentage, maybe. Maybe that would help the color. We don't really publish sales figures for these single divisions. We will probably do that next year. But maybe you have a percentage of the last year's split between rings and in liners. Last year? Yes. Okay. Well, last year, just keep in mind that Tesoro was not included in the first half of 2019. So these figures, it's difficult to really compare like for like. But revenue wise, in well, in the first half, we are down in the packaging side, we are down 10%. And we are around €28,600,000 and we have been around €30,000,000 just €30,300,000 I think in Q in the first half. Sorry, sorry, sorry, sorry. This is Q2. You are asking about? H1. H1, 2017. Yes. And 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 But 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. Tesoro stands for roughly €5,000,000 not €4,500,000 in sales in the first half. If you deduct that from the first half year figures of 20 20, we are at €58,000,000 roughly, €57,500,000 €58,000,000 That's around the revenues or the sales we have done in H1 2019. Great. Okay, great. If you if this person has another question or would like to speak to that I mean, the detailed figures are in the report actually. Yes. Or you just posted the initial Mr. WF. So maybe you just send me another e mail if you need more clarification on that. But next, we have a caller from a mobile phone where also can see the name. The phone number ends with 6 37. I will now put your audio on. Yes, so please go ahead. Hi, Mr. Beatty. Hope you're doing well. It's Jan Pappas 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? And what makes you confident that you are going to achieve the required pickup in sales growth in H2 to meet the lower end of the full year 'twenty six guidance? And you mentioned that you are expecting that especially second box systems should significantly pick up in Q3. Can you remind us or can you tell us the reason for that? And 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. I would 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 in starting with the worst one in industrial handling looks actually quite poor even for Q3 2020. We believe that it will be will continue to be down roughly 15% to 20% in Q3. In Industrial Packaging, when I look at the liners, the order book looks actually very, very good. And we have a significant increase in confirmed orders now, especially in the bag in box systems. And 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. And this 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. And yes, the order book looks actually very, very good in the in liner business. Also at NITL, the beer tank in liners are increasing. We see still a very weak demand in our form in liners. The form in liners are mainly used in the chemical industry and especially outside Germany like UK and France, there it continues to be very weak, but the rest actually the demand situation is picking up. And the ring business, I mean, we don't have a huge order backlog, as you know. And therefore, it's difficult to comment on that too much. But we see a clear increase already in July. And August is a typical holiday month now. So it is difficult to comment on August, but the figures are pretty much now stable. And that overall is the reason why we are quite confident also to reach our guidance. We haven't well, 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. And this and the situation in the in liner 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 United States where we are participating in a program which was launched by the government and that has the situation 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 for 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 and L and on our profitability. And that's something what we have done and we haven't accounted for that in our guidance yet. And regarding the free cash flow, what support can you give us there 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. So what happened was we were able to achieve higher prices, but with a longer payment term. And therefore, Q1 was negatively impacted because our working capital increased because the receivables increased. This is now and that's a one time effect. And now over Q2, this has slowly come down to a normal basis again. And the operational cash flow, as I have mentioned, is around €6,000,000 and the free cash flow will be or is around €5,200,000 We haven't invested that much up to now because most of our well, first of all, we have postponed some of our investments especially abroad. And 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 and this will be installed in the second half. And also in the liner business, we have a major upgrades of our beer tank liner machine and this will also be taken out in the second half. The free cash flow situation or the 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. And therefore, we can be very confident to keep this high cash flow. There are no extraordinary expenses expected and 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're very well prepared for that. Thank you very much. Very clear. Great. Thanks, Kyung Soo. So next, we have another question from the chat room. It's 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 question on the cash flow, we just answered. And the next would be question would just be a bit more of an outlook to 2020. Will a further increase in EBITDA be possible? And how we see our midterm perspective from the current status? Will that will we grow towards these EUR 200,000,000 or rather not? Okay. I would start with the last question actually, the midterm projection. I mean, we have postponed the major M and A activities now, which doesn't mean that we are not focusing on the long term growth of the company. And 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. But 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. And if I talk about postponing this guidance of €200,000,000 in revenues, We've always and very clearly expressed that it is not the €200,000,000 which trigger us. It is the long term perspective and the understanding that we will grow especially through acquisitions. And this hasn't changed at all. It's just as I said, it's just a pause in this process and we will continue our track record in that respect. So it's performance and it's not giving up our view or our vision on the group. Then the next question was 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 minus 800,000. We haven't calculated a tax figure yet or tax percentage. And I mean the final figures we will publish in September then. And 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. I mean, we don't have the final figures yet. That's why we published the preliminaries and therefore the final figures then will come in September. Okay, great. So the next question comes from Montego. I assume it's Patrick Schback. 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? So without the inorganic effect of Tesoro. So how did, for example, Nipple perform in the current situation? Nipple didn't grow much in the first half. Actually, it's I think it even reduced its volumes slightly. And this is not to the fact that 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 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. And therefore, which is by the way, which is quite normal for Italy. It's not it's very different to the order situation in the ring business. The cyclical of the cycle is much longer. We usually have a much bigger order backlog and the lead time is usually more around 6 to 12 weeks instead of 2 weeks in the ring business. So the needle business did not grow in the first half of twenty twenty. There was a negative of, I would reckon, around 5%. However, the Tesoro 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. So we are now supplying more and more into the milk producers and yogurt and all of that. And they have no seasonality, so we were able to supply more in this region in the first half. And a quick follow-up on that. Do you expect some catch up effects in the Q3 now? No. We don't really expect catch up effects in little what we see that the product mix will change now slightly. And we well, we will see some catch up effects maybe in the beer tank line, but we will not see any catch up effects in the round bottom liners or in the forming markets. This is a business I mean, 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. And therefore, we don't expect any catch up effects in that region. And my third question would be on seasonality. You mentioned that the second half of the year usually is the weaker one. But yes, 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 Q2 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. And the expectation is July was definitely up compared to June. August is always quite a weak month. So basically, I would expect that Q3 is pretty much, pretty much most probably on the level of Q2, maybe, maybe a little bit better, but not as good as Q1 was. Very clear. Thank you. Thank you, Patrick, for your questions. So then we have another question from Florian Pfeitsjester from MainFirst. Florian, please go ahead. Yes. Thanks for taking my follow-up questions. 2 rather short ones on the how the integration is progressing, especially on Soleni. Is this already concluded in the U. S? Or has this done something to do with the program you're participating in the U. S? And similarly for the Tesoro, here 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 Serenity. Serenity is now fully integrated and all IT systems installed the financial depart well, all the financials as it was an asset deal are being made centrally in Birmingham through sales industries. And therefore, the integration process was, I would say, quite smooth and the team in the U. S. Did a great job actually. We have the advantage that our CEO in the United States 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 we were not finally not able to really take advantage of all the potential savings we could reach due to COVID-nineteen because we did not consolidate our plans there and we are now in the situation of actually even rethinking that. However, the contribution and the performance of Sarene is better than expected and better than it was in our business case. And we currently see that it makes more sense to do maybe some smaller adjustments there. And we allocate only a few ring types and this will help already or this helped already to save some costs. And 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 comes down a little bit. With Serenity keeping in mind, they are or they were mostly serving the reconditioning industry and the reconditioning industry in the U. S. Is heavily down due to COVID-nineteen and therefore so really is suffering. But 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 Tesoro, we see improvements absolutely. And I would say from the operational side, we are much further or we are much better off than on the let's say on the financial side and all of that because in Tesco, we still are running the old ERP system. We have no full integration yet. And we need to see that we most probably need to upgrade the financial department there a little bit. And 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. And therefore, as I said, operationally, it works very well. We have a great exchange between Nittel and Tesoro. We have a combined sales team now. We have a combined quality team. We are now sourcing some items together and therefore that actually helps quite a lot and we see some effects there already. Great. Then thanks a lot, and have a great day. Thank you. Thanks, Julian. So I think that's it for the questions so far. Again, if you have further questions via phone, please press star 9. Otherwise, raise your hand in the participant window or write something in the chat room. Looks like there are no further questions. So from my side, thank you. And I hand it back to Christoph for the final words. No final words from my side. Only thank you for participating. And I hope that at least some of you I will see on here in our annual meeting, in the shareholders meeting on the 28th of August and up to then. Thank you very much and all the best. Thank you,