Welcome to the H1 2025 Earnings Call of the Wacker Neuson Group. My name is Peer Schlinkmann. I am the Head of Investor Relations and Corporate Communications. Thank you for joining us today for the release of our half-year 2025 results. As usual, we will first start with the operational and financial results of the first half-year 2025, then give additional insights on the recent developments as well as our outlook for 2025. In this, we are happy to answer your questions in the 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. Note that the entire call, including the Q&A session, will be recorded and a replay will be made available on our corporate website by the end of the day.
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, Peer. This is Christoph Burkhard, CFO of the Wacker Neuson Group, and welcome everybody to our earnings call, and thank you for joining.
Hello all, a warm welcome from my side too, and thanks again for joining. I'm Karl Tragl, CEO of the Wacker Neuson Group. I would like to start the presentation with a brief overview of our key financials for the first half of 2025. We have achieved operational recovery. In a challenging macroeconomic environment, which had especially weighed on the first quarter of 2025, we were able to increase both our revenue and EBIT margin quarter -over -quarter. Positive development is the result of efficiency measures that we initiated last year, supported by a growing order book since the beginning of the year. Now, let's have a closer look at the first half of the year. Revenue increased from EUR 494 million in the first quarter to EUR 581 million in the second quarter of 2025.
Now, with a total revenue of EUR 1,075 million in the first half year, we are on track to achieve our full-year revenue guidance. Our H1 2025 EBIT margin, amounting to 5.2%, was negatively impacted by the weak first quarter. However, with an EBIT margin of 7.6%, the second quarter already shows a significant improvement compared to the first quarter. A year-to-date book-to-bill ratio greater than one continues to give us tailwinds and visibility for the second half of the year. The improved top line and thereby further improved cost coverage, together with an expected higher share of revenue from our services segment in the second half of the year, should also be beneficial for the EBIT margin development. Therefore, we are confident that we will reach our guided revenue range as well as our EBIT range for 2025.
Compared to last year's figures, we are looking at a significantly lower working capital that also translates to a lower working capital ratio. Christoph will dive into these developments later. Before I talk about the development of our regions, let me also comment on the most recent agreement between the U.S. and Europe on tariffs, set at 15% for all European imports to the U.S. While it has brought clarity, a sense of uncertainty still remains among our U.S. customers and distributors. Nonetheless, we now have greater clarity for the moment. We have already analyzed the extent to which the U.S. tariffs on steel and aluminum, as well as the general 15% tariff, will impact our business, especially in the context of intercompany transactions between our European production sites and our American subsidiaries.
These effects have been carefully assessed and, to the best of our ability, have been factored into our 2025 guidance. Now, let's move on with our performance across regions. In general, the overall picture remains challenging. Revenue in Europe, which makes up 78% of group revenue, fell by roughly 10% to EUR 835 million. This decline was again due to a lower demand in our key markets. Once again, a positive impulse came from the second quarter of 2025. Revenue in the EMEA region was already almost back to the level of the second quarter of the previous year at EUR 463 million. As in the previous year, the most important markets in Europe in the first half of 2025 were Germany, France, the United Kingdom, and Switzerland. However, demand in these four countries declined compared to the first half of 2024.
A few markets in Southern, Northern, and Eastern Europe developed positively, but not enough to offset the overall negative trend. Moving to the Americas region, which amounts to 20% of group revenue, we saw a decline of roughly 20%, resulting in revenue of EUR 218 million. Demand in the first half of 2025 was characterized by greater caution in ordering behavior than in Europe due to ongoing macroeconomic and geopolitical uncertainties. Decline not only in the U.S., but also in Canada and Mexico. In the Asia-Pacific region, which represents 2% of our business, revenue dropped by 23% to approximately EUR 22 million. The region was primarily characterized by a decline in demand in the Australian market. Now, let's look at our business segments. Also, order intake has improved since the beginning of the year. Both the construction and agricultural sectors are only gradually recovering.
Reasons: the compact equipment segment recorded a revenue decline of 19% year -over -year in the first half of 2025. At the same time, light equipment remained roughly on the previous year's level. On a positive note, services grew year -over -year by more than 3%. To summarize, as expected, in the first half of 2025, we saw the first signs of recovery in our segments with a book-to-bill ratio above one. We remain cautious and we describe the current situation of the entire industry as having just passed the sales trough. Now, we'll hand over to you, Christoph, to give some more details on our financials.
Thank you, Karl. Let's take a closer look at where we stand with our working capital. Excuse me.
Before we dive into the details, let me quickly reiterate that I mentioned in the last earnings call, when discussing working capital ratio, we focus on the calculation based on the last 12 months' revenue, not on an annualized basis of the most recent quarter. To me, this approach ensures our quarterly numbers remain directly comparable to our year-end target. Maybe let me briefly elaborate on the slide that you are just seeing for maybe all the people that are not super close to those numbers. For the sake of transparency, we have chosen now to display ratios for both calculation methods, annualized and last 12 months. I think if you particularly look at Q2, then you see in a perfect way how to interpret differently those numbers depending on the trend you're looking at.
If you look now at the annualized number, you see a dramatic reduction from Q1 to Q2. Why is that? Since you take the respective quarter times four, in times where you have a much stronger quarter revenue-wise compared to the previous quarter, the ratio, of course, goes down there and vice versa. With the last 12 months, now looking at Q2, you see basically an unchanged number, which has to do with that, on the one hand, our working capital development is pretty stable. On the other hand, the basis is basically changing a little bit to our favor. To cut the long story short, if you want to relate it now to our year-end target, you see you find the true sum somewhere in between those two numbers.
The 32.8% are showing a picture that, according to our development in relation to our year-end target, are a bit at the high end. It's rather something in between those two numbers. That's just as a clarification for the connoisseurs here of the KPIs. If we look now at an on the annual basis, the course over the last 12 months, and to give a bit more flavor, we need to acknowledge that working capital dropped by EUR 215 million from EUR 906 million at the end of June 2024 to EUR 691 million by the end of June 2025. This reduction obviously is mainly driven by a steady reduction of inventories by EUR 132 million. Also in Q2, we managed to continue this trend with an inventory reduction of EUR 22 million despite growing revenues compared to Q1.
While this reduction is, in absolute terms, of course, relatively modest compared to what we have achieved previously, I think the emphasis is on despite growing revenues compared to Q1. Therefore, I think we are overall quite okay with the development, and we feel okay looking forward. Trade payables and trade receivables roughly grew similarly against the background of growing revenues. That's basically another confirmation of the statement that I've just made. Looking ahead, we, of course, remain very focused on steadily bringing down the net working capital ratio towards our 30%. We will and we do continue to adapt our production planning in line with the gradual but steady recovery in our core markets, making sure that we are well positioned to deliver on our 2025 objectives and that we are ready to capture future growth.
Maybe a final remark here on working capital, also complementing what Karl just has said on the regional developments. Of course, since we have already mentioned that the U.S. is the area where we are slower than expected and where we are suffering a bit from market uncertainty, this also has an effect on working capital for two reasons. Firstly, we initially, when it became apparent that we get into this tariff discussion, we, of course, shipped overproportionately goods to the U.S. Those goods are now, of course, partially still sitting in inventories. Secondly, the overall sluggish market in the U.S. is also, compared to our plan, adding a bit of working capital. That should not blur our expectations towards year-end. It's just a kind of a piece of information that also working capital is a little bit impacted by the overall situation in the U.S.
With this, let's move to the next slide. Looking at our free cash flow, Karl already mentioned the positive EBIT and revenue trend from Q1 to Q2. Fortunately, we do see this trend equally with our free cash flow generation from Q1 to Q2. We ended up after Q1 with EUR 90 million free cash flow, and now we have added throughout Q2 another EUR 48 million, adding up to a total of EUR 68 million after rounding in H1. My expectation is that by the end of this year, we will see again a triple-digit number. Now, talking about debt and equity, there have been no significant changes since Q1. Net financial debt stands approximately at EUR 299 million, basically unchanged compared to Q1, despite dividend payout in May. I think that is insofar a meaningful information because it shows that we kept our net financial debt despite that payout.
Obviously, if you relate that to the free cash flow, then we were able basically with the additional free cash flow generation to cover the dividend payout if you want to just link it directly together. Last but not least, not a surprise, our leverage ratio for the last 12 months remains at 1.1x, as usually supported by a robust balance sheet with an equity ratio of 59% currently. With that, back to you, Karl.
Thank you, Christoph. Our focus will be on increasing our profitability further in the coming quarters. We would like to reaffirm our 2025 guidance, which remains unchanged for all KPIs. We already started to implement actions, which will set the path for 2026 and the path for our long-term growth in line with our Strategy 2030. Finally, let me summarize the key messages from our first half of 2025. We are on track.
Revenues are fully in line to reach full-year guidance, and profitability is expected to climb further in the coming quarters. Strategy 2030 remains our north star. We are executing our 2025 action plan with discipline, and we are already setting the course for 2026. Geopolitical uncertainties remain a key focus, but with the latest tariff agreements between the U.S. and Europe, we are gaining greater clarity for the moment. We are ready to seize the opportunities in the years ahead, presented, for instance, by the German Special Fund. A strong balance sheet gives us the foundation to deliver on our plans and to drive future growth. Ladies and gentlemen, thank you again for your trust in our company and for listening to today's earnings call.
Before we jump into the Q&A session, let me send a sincere thank you to all our employees of the Wacker Neuson Group, who are relentlessly giving their best for our customers, our company, and our shareholders. That is perfect but a team can be. Thanks for listening. We are now ready to start the Q&A session.
Thank you very much. Dear ladies and gentlemen, if you are dialed in the conference call, please press nine and then the star key to state your question and enter the queue. If you wish to cancel your question again, please press three and then the star key. For now, please press nine star. The first question is from Lukas Spang of Tigris Capital. Please, over to you.
Yes. Hi. Good afternoon, gentlemen. I have three questions, and I would do them one by one. The first question is related to the order momentum or the order income or new orders. You said in your presentation that the book-to-bill ratio is above one. In the last earnings call, I think you said that until the earnings call, book-to-bill was 1.5x. Can you maybe narrow the explanation? You said that it's above one a little bit, that we have a more detailed impression of the book-to-bill currently.
Lukas, thanks for the question. I will give more and more details on that. I have to say that the 1.5x is difficult for me to consider where that might come from. The facts at the moment are that the orders are increasing since November, and Bauma was a very special month. Probably that might be the month where book-to-bill was beyond even 1.5x. There was a very special effect, and I wouldn't rather call it a catch-up. It's more this enthusiastic effect of the Bauma, where customers are really ordering. Coming back to the numbers you were asking for, in June and July, I take the current month, we are looking at the group-wide monthly book-to-bill ratio of 0.9x. Two months with 0.9x and with regional differences, as Christoph has already explained in the call, obviously better in Europe than in America.
Year to date, July, we are looking at a group-wide book-to-bill ratio of still 1.1x, again with the same regional differences. This basically explains that the current situation has still some fragility in it, but it's still we see the order book to reach the revenue for the rest of the year.
Okay. Thanks for the insight. Coming to the margin, I was a little bit wondering that you had some decline in revenue in Q2, but the gross margin increased, and EBIT at the end was also more or less in line with the revenue decline. I was wondering why your efficiency program or cost measure program is not coming more through in this regard.
Thanks for your question. Peer speaking here, can you give some more clarity on your comparison? Are you comparing Q2 with last year's Q2?
If I compare Q2 2025 with Q2 2024, we saw this 5% revenue decline and the EBIT decline of 6.2%. The EBIT margin was down a little bit, so 7.7% last year's Q2 and now 7.6%. I was just wondering why your cost efficiency program is not improving the margin even more after you have increased the gross margin. Why is earnings or the profitability due to your cost measure program not increasing more?
Yeah, it's not clear whether I understood the question fully. In last year Q2, we were in a situation where we had still a strong quarter, but we saw already some decline in our KPIs. In this Q2, we are basically on the upswing now in cost and in also revenue and in coverage and everything we have. This must be, the question you're asking for must be explainable with this effect that, as I said, last year, revenue started to drop off a little bit in Q2. At the moment, everything is rather picking up, resulting in this EBIT margin roughly at the same level as last year. Does that give you more insights on what you're probing for?
Did you have then in Q2 already some costs for, let's say, the second half of the year, or how should we see that?
What do you mean by cost? I mean, what we expect is definitely for the second half that the profitability will increase. This includes, of course, on the one side, higher revenues compared to H1, especially if you look at Q1 results. The second part of it is definitely also for the cost measures or improvement on the cost side. All in all, this will then help to improve the profitability in the second half compared to H1.
The cost improvements are not really reflected in H1. It's more a topic for H2.
Maybe I jump in and try to explain. You're talking about the operating costs, right?
Now it's below the gross profit.
I hope that I can give you now an explanation because I relate it always to the developments 2024 and 2025. I always relate it to some catchy numbers in the sense that throughout 2024, we were, depending on the quarter, quite a bit above EUR 100 million per quarter. Yeah. We targeted for 2025 on a this is now a little bit over-simplistic, but to get well below the EUR 100 million per quarter. You have certainly some special effects sitting in there, some one-offs. In that respect, I do see ourselves being on the right track. If you now take Q2 and you look at the operating cost with EUR 98 million, so below the EUR 100 million. As I mentioned, we were, depending on the quarter, in other quarters in 2024, we were above the EUR 100 million mark.
We also do have on top in the quarterly number still some restructuring costs. Okay. Therefore, this, of course, we would also have to subtract from the EUR 98 million.
Can you quantify them?
I think it's about EUR 3 million-EUR 4 million in Q2.
Yes. You now confirmed your outlook, and you said that you also expect a further improvement in the profitability in the second half of the year. How much backend loaded do you expect in 2025 if we think about Q3 and Q4?
Now, this is about basically giving you a quarterly guidance, yeah?
More on a quarterly perspective.
I would say it should be a rather balanced picture instead of being backend loaded.
Okay. Thanks.
All right. Thank you very much. We are moving on to the next question. The next question is from Alexander Gelis of HIAB. Please, the floor is yours.
Good afternoon. Just a question related to North America. I think previously you mentioned that the total flow of goods between Europe, U.S., and China was less than EUR 100 million. Could you narrow down how much there is related to Europe to U.S.? Now with the 15% tariff rate, what would you estimate the impact be? All else equal before any measure is being taken. That's the first question. The second one is also on North America and John Deere cooperation in particular. If you could remind us, what's the expected phasing in terms of as far as manufacturing goes? When do you expect to start manufacturing locally in the U.S.? How much of the total volume, I guess, midterm would you expect to be manufacturing locally versus in Europe? Thank you.
Thanks, Alexander, for the question. As far as the tariffs are concerned, let me try to give a formal detailed story on that. Now with the tariff agreement, we have a foundation where we can recalculate what we have done. Our key strategic objective is and will always be local for local. This year, around 80% of our revenue in the Americas is produced locally. The other roughly 20%, which are imported, are mainly from Europe, so affected by the tariffs. On the other hand, our machinery parts are also affected by the tariffs. It's mainly steel and aluminum, which we are importing and where we know also exactly where the numbers are. Within our calculations, which we are doing on a continuous basis, we are convinced that in our guidance, this is included, this is reflected.
In general, we have to say that we are still fighting on finding a fair share of taking the burden on the one hand by our suppliers and on the other hand by ourselves with further cost reductions. Looking for the numbers, I think it's 80/20. That's the number you're looking for: 80% manufactured locally. The rest then is a more complicated mark, which we have figured into our guidance. As far as John Deere is concerned, we are working on four models. The smaller two models are getting deliveries in this year from Europe. The other two models, the larger ones, the three and the three and a half and the four and a half ton, will be manufactured in the U.S. Start of production of the first one is end of this year, and start of production of the other one is next year.
The target split is roundabout again, but that's more by not by luck. This is how the numbers turn out. It's 80% manufactured in the U.S. because it's the larger models with a higher volume and with a higher value. Roundabout 20% in the long run imported then still from it. Does it answer your question?
Yes, thank you. Just one follow-on question on the tariffs. Could you share a percentage of the COGS that is related to aluminum and steel, roughly?
I got the question. I would have to take it out of my head.
We can also.
Can we give you numbers later on?
No problem.
We know exactly from our CSRD reporting how much aluminum and how much steel we have in our product, but I would have to look it up. Peer, we'll get in touch with you.
Thank you.
Thanks, Alexander.
Thank you very much also from my side. At the moment, there are no more questions in the queue. Dear ladies and gentlemen, last call. Please press nine and then the star key now if you have a question or a follow-up question for our hosts. I repeat, the combination is nine and the star key. All right, there seem to be no more questions incoming, so I am handing the floor back over to the host.
Ladies and gentlemen, as we can see, there are no further questions in line. This brings us to the end of our conference call. As usual, if you have any further questions, please do not hesitate to contact the investor relations team or me via phone or email. If you would like to meet in person, please let us know or check our website and financial calendar for all relevant roadshow dates in the coming months. Thank you once again for joining us. We hope you continue to have a fantastic summer. Have a great day. Bye-bye.
Thank you.
Bye-bye.