Good afternoon, everybody, and welcome to the half year earnings call of the Wacker Neuson Group. My name is Per Schlinkmann, Head of Investor Relations and Corporate Communications. Thank you for joining today on the occasion of the release of our 2024 half year results. After we have already published our preliminary figures on the seventeenth of July, we will now present our full set of results that were released this morning. First, we will show the operational and financial results of the 2024 half year and give additional insights on the recent developments. Following this, we are happy to answer your questions in a Q&A session. If you are not able to follow today's call via the webcast, the presentation slides are also available for download at wackerneusongroup.com/investor-relations.
Please note that the entire call, including the Q&A session, will be recorded, and the replay will be made available on our corporate website by the end of the day. And now, I would like to hand over to our executives, Karl Tragl and Christoph Burkhard, who will, as usual, lead you through this call.
Thank you, Per. This is Christoph Burkhard, CFO of the Wacker Neuson Group. Welcome, everybody, to our earnings call today, and thank you for joining.
Dear all, a warm welcome from my side, too, and thanks again for joining today's conference call. I'm Karl Tragl, CEO of the Wacker Neuson Group. Let me start with an overall statement on current market situation. As mentioned at the beginning of this year, 2024 is a year of consolidation. This summer, we continue to face a persistently weak market. Construction machinery sector remains subdued. The industry as a whole has been characterized by a low order intake and full dealer warehouses since Quarter Four in 2023. Our recent results and our updated outlook reflect this current market environment. Nevertheless, we diligently work on the implementation of cost reduction actions, which Christoph will explain in more detail later in our presentation. Now, let us start with our key financials for the first half year, 2024.
Our revenue for the first half year declined by 12% to around EUR 1.2 billion. Earnings before interest and taxes, EBIT, amounted to EUR 83.8 million, resulting in an EBIT margin of 7.0%. The EBIT margin increased in Quarter Two by 1.5 percentage points compared to Quarter One of this year. But a year-on-year comparison shows a lower profitability due to decreased revenue and reduced plant capacity utilization. Despite successful inventory reductions, our net working capital ratio in half one remained at an elevated level of 37%, which was mainly driven by lower trade payables. In all our regions, revenues remained below prior year. Our sales in the Europe region fell by roughly 10% to EUR 926 million.
Along with our key market, Germany, also major European construction machinery market in France, plays a big role in revenue generation. However, while our revenues in Germany declined in comparison to previous year, revenues in France across all brands increased during the same period of time. In contrast, the U.K. market remained on previous year's level. We also saw mixed market developments in Eastern and Northern Europe. In the Americas, our revenues fell by roughly 17% to EUR 251 million. Both contracted and independent dealers, as well as key accounts, reported a drop in end customer demand, resulting in full warehouses. The Asia Pacific region reported a roughly 31% drop in revenue and amounted to EUR 29 million. This development was primarily due to a demand decline in the Australian market, which had been characterized by double-digit growth rates in the previous quarters.
Looking at the year-on-year comparison of our business area revenues, light equipment declined. Also, compact equipment in total was also decreasing year-on-year. Some product groups, such as dumpers and telehandlers, developed positively. And finally, demand for rental machines and spare parts increased in the first half of 2024. In addition, after-sale services like maintenance and repair also grew in the first six months. Overall, we see a year-on-year increase of more than 3% in our service business area. I will then now hand over to you, Christoph, to give some more insights on our financials.
Thank you very much, Karl. As usual, I would like to start with the development of our net working capitals. In our previous management call, our Q1 call, I was talking about a stagnating net working capital number influenced by a combination of subdued market demand and overstocked dealer inventories. Now, what happened since then? At first glance, not much. Working capital ratio came down from 39% to 37%, but in absolute numbers, net working capital is reduced only by EUR 12 million... This, however, does not reflect the full truth. When we dig one level deeper and look at the development of our inventories, we see a reduction of EUR 54 million in one quarter. This is a clear indication that the downward trend in inventory has finally begun.
At the same time, we further reduced production output in our factories due to the ongoing low market demand, causing a significant reduction of trade payables amounting to EUR 44 million in one quarter. And this, of course, had a counter effect on the working capital reduction generated by lower inventories. Overall, however, my interpretation is positive with respect to the reversal of the trend, leading now to a sustainable reduction of our net working capital. This statement is also underlined by a free cash flow generation of EUR 30 million in Q2, leading finally to a positive free cash flow number of EUR 5 million at the end of H1. And I can tell you today from our preliminary current trading in July, that the trend of further reduction of net working capital and corresponding positive free cash flow generation is continuing.
Last but not least, our net debt position has gone up by EUR 64 million in the second quarter, while our equity ratio went slightly down to 55%, and both developments were partly caused by the dividend payout in the second quarter of 2024. In this context, we replaced the EUR 70 million tranche of a Schuldschein, a promissory note that expired in May, with a new Schuldschein in June, in the amount of EUR 100 million with a tenor of three years . The issue was heavily oversubscribed and again, very favorably priced. Now, the next slide gives you an overview of the active measures we are taking to counterbalance the current underutilization costs and to prepare ourselves for 2025.
As we had to swiftly adjust production output to the ongoing sluggish demand, we reduced the workforce in our plants by cutting temporary contracts and by introducing short-time work. In addition, we also reduced personnel in the SG&A area through the introduction of voluntary programs, plus, of course, comprehensive saving measures in IT, energy, marketing, and travel. On the sales side, we set several measures to support revenue generation, among others, via various sales initiatives and subsidized low-interest customer financing programs towards our dealers and direct customers. All this is accompanied by maximum focus of our sales forces on our service and rental businesses. Finally, we are opening up additional revenue streams by expanding our product portfolio with the introduction of new machines, like the 12-ton dumper.
This already shows some effect in our P&L, like our gross profit margin has increased by 2.2 percentage points since Q4 2023, moving from 21.8% to 24%. On the personnel side, we have reduced our workforce by approximately 500 employees since Q4 2023, which is a 7% decrease in our total number of employees. Our quarterly SG&A costs have also dropped since Q4 2023, from around EUR 100 million to around EUR 100 million in the second quarter of 2024, including one-off effects amounting to EUR 4 million. Those one-off effects comprise redundancy costs of, to safeguard the current transition from our old warehouse to the new warehouse in Mülheim-Kärlich, as well as restructuring costs related to personnel measures. Neutralizing those one-offs will bring us well below the EUR 100 million euro threshold per quarter.
In total, we expect to generate with all our initiatives more than EUR 40 million, contributing to our earnings in 2024. Maybe even more importantly, by implementing all those measures now quarter by quarter, we expect to reach a sustainably reduced cost base for 2025 and the years after, also supporting our Strategy 2023. With respect to you, Karl.
Thank you, Christoph. Before concluding our presentation with the updated outlook, I would like to give you a brief overview of the progress in our Strategy 2030 implementation. To remind you, this slide shows you the big picture, while the next two slides give you more details on the recent developments along our 10 strategic levers. As said in our last call, we will provide you with regular updates and further information on the levers in our earnings calls. Here you see an overview of the progress we have made along each lever since 2023, and in this year, 2024 so far. And you also see planned milestones in the upcoming years. Compared to the updates we gave you in May, you can see that we have now ticked a few more boxes for 2024.
Now, let us highlight 3 successful milestones that we have achieved in the course of 2024. In our digitalization and automation strategic lever, we managed to successfully finalize our migration to S/4HANA. After more than 2 years of preparation and involvement of around 1,000 employees in the final testing phases, S/4HANA went live as scheduled in May 2024. The transformation went smoothly, and we did not encounter a single interruption of our businesses. Secondly, we opened our new spare parts warehouse in Mülheim-Kärlich in June. This automated warehouse, with 55,000 square meters and more than 30 robots, enables us to significantly improve our logistics and increase the availability of our spare parts. The warehouse in Mülheim-Kärlich will be the new hub for the global supply of spare parts for our 3 core brands, Wacker Neuson, Kramer, and Weidemann.
It will guarantee faster and more efficient delivery of necessary parts to our customers, which further increases our machine availability and customer satisfaction. For example, we are improving our cut-off times by two hours. The cut-off time defines the latest time at which a spare parts order can be placed, so that it can be processed and prepared for dispatch on the same day. We are also achieving efficiency gains through single stocking, resulting in a 5%-7% reduction in operating and intermediate logistics costs. And by the way, just one further remark, Mülheim-Kärlich might not be, you know, a town familiar to all of you, but it's very favorably located to the Frankfurt Airport, which, of course, contributes a lot of benefits to our logistic area. And last but not least, we further strengthened our core business through several M&A activities.
Firstly, at the beginning of 2024, we invested in the startup TorqWerk GmbH, which was founded through a collaboration with RWTH Aachen University. TorqWerk is developing electric motor modules to be used in the Wacker Neuson product portfolio, which will increase machine efficiency and reduce cost. Secondly, we acquired two companies to increase our market coverage. The takeover of Weidemann Nederland B.V. opened up further sales channels into the agricultural sector and improves our sales activities in the Netherlands. Finally, we completed the acquisition of AXOR Mietservice GmbH at the beginning of the third quarter of 2024, therefore, after the H1 closing date. On the one side, this transaction will improve our regional market presence in Germany, but in addition, this will also expand our business activities into the railway sector, where we expect significant public investment in the coming years.
Following the completion of the transaction, the company will operate under the name Wacker Neuson Railway GmbH. It will focus on the rental and servicing of track-laying machines, expand our business across Germany, and further grow its market position. All three acquisitions will support our continued growth strategy. Ladies and gentlemen, we finally will explain our updated outlook for the Wacker Neuson Group and the market in general. Main business climate indices for the construction industry, CECE, as well as for agricultural machinery, CEMA, do not see a stabilization of order intake yet. As we recognize a period of weaker market demand, longer than initially expected, we adjusted our full year guidance for 2024, as already communicated on the seventeenth of July.
For 2024 full year, we now expect revenue in a range of EUR 2.3 billion-EUR 2.4 billion and an EBIT margin of 6%-7%. The Off-Highway Research, and many industry experts characterize the current market trends as a correction back to normal conditions. We are preparing our structures and activities exactly for this market level, and thus, as Christoph explained, for a successful year, 2025 again. We will harvest the results of all our sales initiatives and all the cost reduction actions implemented this year. There is a famous quote, "We cannot change the direction in which the wind blows, but we can adjust our sails." That's exactly what Wacker Neuson is doing. We are confident that we will navigate well through this cycle.
Thank you for listening, and I would like to ask the operator. We are now ready to start the Q&A session, and we are very much looking forward to answering your questions.
Ladies and gentlemen, if you would like to ask a question, please press nine followed by the star key on your touchtone telephone. If you would like to withdraw your question, press nine and star a second time. The first question comes from Stefan Augustin, Warburg Research. Please go ahead with your question.
Yes, hello, gentlemen. I have a couple of questions. The first one would be actually on the order intake. Mr. Tragl, you commented that you see not yet an improvement. Could you make possibly a statement if Q2 is going to see a low or has seen a lower order intake than Q1, and are we still on this downward trajectory? And do we still have orders below sales at this point in time?... even if we cannot see an inflection point right now, it's a question if we stabilize somewhere on this low level now?
Okay, thank you, Stefan, for the question. So first of all, I would like to say that the second quarter basically shows stabilization on the level. However, on a level which is lower than sales, so we have a below 1 book-to-bill ratio, and this is very much different regionally. It is on an average, I would say, in Europe. It is lower in North America. And overall, I would like to say that it is where we have direct market access, and we see directly the end user demand, it's closer to a 1. While in areas where we have dealer replenishment business, basically, that's where we have really low book-to-bill ratios. That's how I would like to explain this.
Thank you very much for that color. And then going a bit to your cost savings. You outlined that you reduced the workforce by 485 employees. This is just temporary workforce in the plans, or did you also make additional cuts? That was one question, with respect to the production part. And then I have on the SG&A savings, where you project to have EUR 40 million for 2024. How much of those EUR 40 million will remain as savings, regardless how the markets react in 2025, so which would be sustainable in case of an upturn again?
Thank you, Stefan. With respect to the workforce, it's a combination of both. We're talking about, of course, the limited contract people as well as permanent workforce. So it's both, and it's not only cost of sales, we also do have now layoffs in the SG&A area, so it's a combination. With respect to the cost measures, I would say that you can count EUR 40 million permanent savings for 2025 following. One thing may to be appreciated, I think I would go too far to say that this is EUR 40 million full SG&A. There's also a portion of cost of sales, cost reduction in it. But it's clearly, we're clearly talking cost savings.
I'm not calculating sales promotion measures in this number, so I think the 40 is a good starting point.
Okay, that seems actually a really good number. Then two smaller ones. If I look at the service business, and I would take out the increase of the rental business, would that still be a positive growth rate, or is the whole increase in the service business related to rental? And the last one would be: Do we see any meaningful consolidation effects in the P&L and the top line from the aforementioned acquisitions?
Okay, I will answer the first question. On the service area, we see growth in all areas of our services business segment. So we have growth in rental, as well as in spare parts, repair, maintenance, and we're also going step by step into maintenance contracts, where we have repeated business based on digital tools and maintenance. So this growth is in all areas, differing a little bit by numbers, but it's actually spread over all the place.
Now, I think, Stefan, you were hinting at the consolidated revenue impact of the M&A that Karl mentioned, right?
Yeah, that's in total amount, it's not really a significant number. I mean, the businesses itself, from a strategic point of view, I think they're very, very valuable, but they are not yet, they do not yet have a big impact, so it's rather very low double-digit million EUR.
Okay, good. Thank you very much for all the explanations.
At the moment, there seem to be no further questions. If you would like to ask a question, please press nine and star on your telephone keypad. We have a question from Alexander Galitsa, HAIB. Please go ahead with your question.
Yes, thank you. I have one question. If you could speak about the visibility you have into the inventory levels in the market. I understand that it varies region by region, as well as your insight, I guess, in those. But, maybe you could just speak about also considering the current muted dynamics in the industry... where would you expect the levels, how or the development of the inventory levels, how would you expect them to develop, as we go into 2025? If you can share any thoughts on that.
I think you are touching a very valid point, because one crucial part of the visibility, of course, is sitting in the dealers' inventory. We have been trying to get maximum transparency here, albeit we do not have full transparency, but we have a lot gained over the previous weeks and months. Because, for example, as you might know, the Kramer business is largely a dealer business, and therefore, of course, information around dealer stock is very important, as well as our distributor markets, where we also are making business with dealers. Now, to cut a long story short, the inventory in our dealers' businesses is, I would say, still higher and will sit there longer than in our direct markets, where we can directly influence our inventory. That's number one.
Number two, as far as the timeline is concerned, if I now simply assume the recent dynamics to continue now, that we have just witnessed in Q2, and now, you know, stepping up in July, we would still look at least until year-end, and on the dealer side, probably into 2025, until we kind of a normalized level again. That's, that's probably our best guess here, I would say. I don't know whether that, that helps.
Yeah, that's helpful. Thank you.
All right.
This will conclude today's Q&A session, and I hand back to the Wacker Neuson Group for closing remarks.
Yeah, ladies and gentlemen, as we can see, there are no further questions left from you. That brings us to the end of our conference call. As usual, if you have any further questions, please do not hesitate to contact me or the entire investor relations team by phone or email. We are very much looking forward to our roadshow activities. If you would like to meet us in person, please let us know or check our website and financial calendar for all relevant roadshow dates in the coming months. Thank you again for joining our call, and we wish you all a wonderful summer break. Have a great day.
Thank you very much.
Thank you.
Bye-bye.
Thank you. Bye-bye.