Earnings Call: H1 2021

Aug 2, 2021

Ladies and gentlemen, welcome to the Interroll Holdings AG Presentation of Half Year Results 2021 Conference Call and Live Webcast. I am Alice, the Chorus Call operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. This conference must now be recorded for publication or broadcast. At this time, it's my pleasure I hand over to Martin Regnett, Head of Communications and Investor Relations. Please go ahead, sir. Good morning. This is Intermod Holding AGM, Martin Regnert. Welcome to our H1 2021 Analyst webcast. With me in the room is Mr. Heinz Hirsley, our Chief Financial Officer. And I would like to give you a brief overview of our agenda today. First of all, I will give you a short overview, what has been happening This year, this half year so far and Mr. Heinz Hirszli will give you an overview about the financial highlights In the first half year of twenty twenty one, followed by that, we offer you a Q and A. Kindly use the system to Send us your questions in writing. We will read them out and answer to you after the presentation. So our group overview, we would like to give you an impression of the material handling market. At the moment, the way we see it, it's a CHF 150,000,000,000 market, Growing at a CAGR of 4% to 7%. And when we talk about the material handling market, This is the overall material handling market. It includes processes like forklifts, mining, Those kind of things, cranes and dose solutions. But when we go into the intra logistics market, we consider this market where we are active in has a market volume of €5,000,000,000 to €7,000,000,000 worldwide. And we consider our market share In the range of 8% to 11% in the field we are active. When we talk about inter roll facts and figures In 2020, we had 2,300 employees, 35 companies. We have 16 main factories. We're still headquartered in Switzerland. We have more than 28,000 customers, and we've been founded in 1959. And Interrole, of course, we consider ourselves as the leading global provider for Material Handling Solutions. When we go into the product groups and look at key figures, and here, you see the key figures for 2020. Then we see that we have pallet handling with 8.8%. Our strongest Our product group is conveyors and sorters. Mr. Hirsley will give you the details for the half year later on. And you can also read them in our half year report. The rollers are at 20% and the drives are 29.5%. We give you this point of view because In the annual report, we have a bit of a more clear picture on the product groups because there are some seasonalities In this Intralogistics business where the product groups have a little bit a different Trajectory typically in H1 and H2. So this is why we give you the overall perspective once more of the year 2020. When we talk about our growth markets, we have a clear focus on a number of interesting Industries that have a high growth rate, typically food and beverages with airports that has been hit By the COVID-nineteen crisis to some degree, but in the long run, still has a considerable potential, We have the warehousing and distribution, tire and automotive. We have the courier express parcel industry that has been growing With a considerable rate, we have the Supermarket Solutions, the Fashion and Retail Sector And as well, the industrial manufacturing sector that we are focusing on. Interroll has a very clear platform strategy. Our target is to offer modular, scalable and flexible solutions. We have our 4 product groups, the rollers, drives and controls, pallet handling, conveyors and sorters. And our target is to clearly deepen This platform make more processes available with our product platform And enable our customers and end users for faster installation and maintenance, shorter delivery times and the highest product quality. Our growth strategy in general is based on 3 pillars. We have the products, the markets and the service. Our innovative products were quite had received quite some additions in the first half of the year. We launched a smart pallet mover in and announced it to the market. And in the years before, we had the high performance cross belt sorter in 2020, and we had The STAGR crane transfer car extensions for the MPP also in 2020. You might be aware that we also We introduced the split tray sorter, and we introduced the vertical sorter. The vertical sorter, however, that was in H2. And so this is also an interesting addition to our technology platform that was mentioned Our geographical expansion was, to some degree, further concluded, at In EMEA, we completed our new plant in Mossbach, doubling the capacity for conveyors and sorters in EMEA. And this one has been completed at the end of July. It's now in full operation since the beginning of July. We also focus not only on the expansion in terms of buildings, But we also expand in terms of plant digitalization. We make our plants more productive. There have been also activities In our plant in Wernerskirchen going on with the new EC5000 production lines That's added positively to our productivity. In the Americas, the plant in Atlanta is still active, and we did an Upgrade on the local assembly in Brazil. In Asia Pacific, a new factory in China will be available at Q2 2022 and The expansion of the Vietnam and Philippines markets is also ongoing. We also see high potential in Australia And New Zealand for further market growth. Regarding the service business, our new service organization has been set We communicated it to the market. We have a warehouse now in South Germany that supports our Growth in the service activities. We do see attractive retrofit opportunities with the high number of saucers that are installed in the market, and we will develop new service packages that are enabled by digitalization. Here's also a clear overview how this innovation in practice looks like. We completed our Sorter platform and expanded it By quite some new solutions in the last 2 years, on top, we have the high performance cross bell sorter That offers a very high throughput that is flexible regarding the size of goods and up to 50 kilo can be transported. And this gives a technological edge to companies that are really have a high focus on throughput and performance. If we see the middle segment, our horizontal and vertical sorters That are proven are still in the market. Nonetheless, we introduced a new type of vertical sorter, And this one will also add to the portfolio. The customers now have different options, Can use different systems, most relevant markets for us in that segment, e commerce, fashion and distribution, but not only. In our Basic segment, we added the split tray sorter. This is a particularly interesting solution for Fashion and Textiles and Distribution. And we excel here with short delivery times, Integrated Controls, our controls family is being expanded by our center of excellence in Linz. And the economical investment is also suitable for smaller operations. Regarding the pallet handling, there have been also some interesting developments been ongoing. We added Smart Pallet Mover, you might have seen it in the media. It's already before market launch. It is the winner of the Ifoy Award 20 21 in the special category, we also won the Red Dot Design Award with it. This one is particularly interesting for the flow of In the manufacturing plants, and here, we have a very clear solution. And to increase our footprint In the manufacturing industry when we talk about pallet flow in the manufacturing industry. The modular conveyor pellet platform is also successful in the market. We added the STACKER crane before, and what we also did is the 0 pressure accumulation that is now possible with our modular pallet Conveyor platform, this provides a unique selling point in the market for pallet flow. Our dynamic storage continues to be successful. There are some interesting projects in the market, and this is a proven solution with up to 50% space and energy saving. When we talk about our global lifetime service, as mentioned, this is being rolled out. We see This is a long term task for us to expand this. In the short term, we started with Europe and have a Separate service organization, which is a profit center now. And we focus here in the first steps on spare parts and refurbishment, Logistics, part packages, part pooling, also noninturall material can be handled by our Service organization. And in the short and medium term, we want to increase the maintenance and services to global customers. We are able to provide more Value add for the installation period, we are able to provide supervisors. We are capable of on-site repairs. We have service contracts, service level agreements, and we focus on the topic of preventive maintenance. In the longer term future, We also see considerable potential for consulting support also for training courses. As you might be aware, we have the Interroll Academy. This can also be used for customer trainings, which are already being done today, but we can upgrade this For the future, we can even extended and deepened program that will provide value add to the customers. Focus here is also on retrofit and upgrades, optimization of the planning and realization period And for the ramp up operation support. In the first half year, we had also a change in Group management, Mr. Ingo Steinkreger, our new CEO, is on board already since the beginning of May. So we had a very good starting period. And You might be aware, we communicated that in the past, we still have our active Chairman, Mr. Paul Zumberg, who stepped down as CEO end of April And is our active Chairman, and both are working as a team in The period over the next months and we also communicated that this is To have the long term strategy in place and to fulfill it for the years to come. We also did some changes regarding our Corporate responsibility, we announced during our General Assembly in May 2021 that we We'll have a road map on ESG reporting, and our objective is to have fully GRI compliant ESG report with the report on financial year 2022. That also means that we will Increase our efforts in the compliance management system that we will have a more In detail, reporting on KPIs in that regards and that you can expect a full SG report So thank you very much. At this point, I would like to hand over to Mr. Heinz Hoeszli for the moment. Good morning, ladies and gentlemen. Also a warm welcome to this webcast from my side. I will now go through the financial highlights, and I start with the summary. The global recovery from the shock of last year's COVID pandemic continued in the first half of twenty twenty one. Based on a very strong market demand, our order intake increased by 60.1% and all regions show an increase. The currency effects did not play a large role and are only minus 0.9%, whereas they played quite a big role a year ago. Sales increased by 16.7 percent. And also here, all regions show an increase. In local currency, Sales increased by 16.4% and the same like with the order intake also here, foreign currency effects did not play The EBIT increased by 39.5 percent to 45,000,000 compared to €32,300,000 a year ago. This, thanks to the top line growth, a favorable mix of the realized sales, together with the high cost discipline. The operating cash flow decreased by 44 point 5% to CHF 25,300,000 compared to CHF 45,600,000 a year ago. As the top line growth has increased, the net working capital in general, but even more because we increased our inventory as a countermeasure The order intake shows an impressive picture. Our product business, rollers and drives, did very well and the project business in conveyors and sawters And pellet handling did even better, driven by a very strong market demand. The book to bill ratio is 1.55 Compared to 1.13 a year ago, and the order backlog as of June 30, 2021, is at record level. Also the sales show an impressive picture. The sales of the products, Business rollers and drives did well, but even better did the project business pellet handling, which a year ago was the unit which suffered the most. Conveyors and Sorters have the lowest growth rates, but the highest order backlog as those projects Have a longer lead time. And also, if you compare to 2020 full year figures, you could see that sorters Conveyors did very well already last year. Looking at the sales development by region, it clearly shows that the sales growth comes from all regions and from all product groups. Even though the sales growth rates are not equal, the shares of the 3 regions remain unchanged to previous year with EMEA with 60%, followed by Americas with 27% and Asia Pacific with 13%. The long term ratio of Interoute remains unchanged with 50% of sales from EMEA And 50% from Americas and Asia Pacific. Due to the seasonality, we can already now say that this change, what we have Last year that Americas has grown, this will also be the case end of 2021. So we'll go So it's the 50%, not yet reaching the fifty-fifty percent, but clearly making a big step forward to this fifty-fifty percent target. The EBITDA increased by 29.3 percent to CHF 56.3 CHF 1,000,000,000 thanks to a higher top line with a favorable margin from the product mix, combined with continued high cost discipline. The EBITDA in percent of sales increased from 18.7% to 20.7%. The EBIT increased by 39.5 percent to €45,000,000 as the absolute amount of depreciation The EBIT in percent of sales increased from 13.8% to 16.5%. Between EBIT and results, we had a slightly negative financing result from foreign currency Loss and the higher tax rate. The result of €33,400,000 is a plus of 40.4 percent. And in percent of sales, the result is 12.2% versus 10.2% in the previous year. The result margins in the first half year of twenty twenty one are on all time record level for the first half year. In the second half year, the margins are expected to be lower due to the change in product mix And the over proportional sales from project business in Conveyors and Sorters and Pallet Handling. The operating cash flow decreased strongly in absolute terms, but also in percent of sales. The operating cash flow decreased by 44.5 percent to CHF 25,300,000 And in percent of sales from 19.6% to 9.3%. The main driver is the strongly increased net working capital, Especially much higher inventories and work in progress as well as trade receivables. Despite the continuous stringent trade receivables management, they increased Due to the growth in the top line, as outlined before, the growth in inventories relates to a countermeasure To the unpredictable supply chain disruptions, where we decided to strategically build up safety stock as well as to the increased work in progress. Nevertheless, reacting to the supply chain disruptions is a short term move. And as soon as this time is over And it goes into new equilibrium with sustainable supply chains. We return to lean inventories. Our principle of cash is king remains. Also out of a position of strength and following the management's long term view, all strategic investments into capacity expansions are going forward as planned. In the 1st 6 months of 2021, our investments were CHF 32 CHF 1,000,000 compared to CHF 26,000,000 a year ago. This led to a negative free cash flow of minus CHF 5,000,000. This chart shows the very positive long term development of return on equity and return on net asset. There is a half year effect from seasonality visible in the first half year of twenty twenty one, which is not unusual and was similar in previous years, where the return on equity was 15.8%, and the return on net asset was 19.5% in 2020. So the 2021 value show another increase in value creation. Interrole is generally optimistic for the second half year of twenty twenty one due to the strong order backlog, But also the challenges on the raw material and semiconductor side will remain, and there is also a risk of further price increases on Some components. Medus remained overall cautiously optimistic for the rest of the year. Based on its strong market position, its innovative products, available capacities for growth and fast growing end markets, served, e commerce, courier, express parcels, food and beverage, distribution, but also industry, At this point, I would like to give you an overview about our Half Year Report 2021. It is now available fully online and digitalized on our website. We We have quite some features added here. We have a quick report, a chart generator And PDF downloads, which you can use. And we, of course, would like to provide you A better usability and more quick access to the data than you had in the past where we only published a PDF. So we would like to kindly invite you to use this digital experience and visit our website. We are also open, of course, And welcome to have your feedbacks. A preannouncement we would like also to make here is that from 10 we will publish a video Of Mr. Heinz Hursley about the half year figures 'twenty one. And Here, you can, in short, again, have a quick look in the video format on the half year 'twenty one for Interol. At this point, I would like to inform you that we are now going to the Q and A session. And we already received a number of questions. We will proceed like this. Each question will be read out, and Then the answer will come. Please note that if we receive questions as a double, That we will focus on answering one question only. We would like to invite you to ask further questions if you still have one. Thank you very much. And the first question, I would like to hand over now to Mr. Hoslie. Thank you. The first question is from Mr. Sebastian Vogel from UBS. In the past, your change in inventory seemed to have followed your weak P and L position rather closely, but not in First half year twenty twenty one, can you remind me of the reason? The what you have seen in the Presentation points already out to what it is. Now we had a very strong demand also in project business. We have a very strong intake in the project business. And in the project business, we have much longer lead times. And therefore, we also have buildup of width. The second question also from Mr. Sebastian Vogel. Is there anything that speaks against the reversal of the weak position in your P and L in second half year twenty twenty one? From today's point of view, with this very strong order backlog, we clearly also see that we will have VIB going into the next year. So this reversal will not take place. We will most likely stay with quite a considerable weak position going into next year. The next question also from Mr. Sebastian Vogel. Can you share your view on price increases that Intral has done year to date? And if there are additional rounds planned later this year. Yes, the first one is we did one price increase, One extraordinary price increase beginning of June. And this normally, we do only one price increase beginning of the year. And now due to this steep price increases in raw material, we consider, But we have not yet decided what we do. We will do one increase beginning of January or we do one increase later in fall, but We will definitely not do 2. So it's increase beginning of January or an increase later on this year. Next question also from Sebastian Vogel. When do you get your other operating expenses will normalize as percent of sales. We see that for this year, we still see that the Costs will remain unproportional. This is also what we did when we decided for the price increase. We did not go out With the heavy price increase, we clearly said we will absorb one part as we are a long term thinking company. We see our Relation to our customers also in the partnership. And we also said from the beginning that we can compensate One part of this material price increases with under proportional fixed costs. The next question out from Mr. Vogel. What sort of CapEx do you plan for financial year 2021, 2022? This stays what we have communicated already many times. We communicated that our investments For 2020 to 2022 will be €150,000,000 and there is no change. Next question also from Sebastian Vogel. How sustainable Is the material increase in our payable days seen in first half year twenty twenty one? The material increase in the first half year twenty twenty one, what we have seen, there is a small portion in, but we had The 1st month, we benefited clearly from purchasing on still lower material prices and the full hit of The next question from Mr. Walther Baumert, Zurcher Kantonalbank. Order intake Asia looks lagging to the other markets. Do we have to worry about this? Is the market or the products or intra or just temporary? The situation in Asia is indeed different to Europe and Americas. We have very strong sales on our products, So rollers and drives, but we miss bigger projects, and then this has immediately A big influence on the sales. Next question also from Walter Bammert. Tortoise was weak in revenues, but strong in orders in first half 21, is this seasonality, clients waiting for new products or is there a different explanation? Now the explanation is clearly seasonality. It's also why the second half year for Intral is always stronger than first half year on the Top line and especially sorters and conveyors is going into holiday sales. So it's Black Friday and Christmas sales, and so this has to be ready installed at customer site always before the basics start. And this is why second half year is stronger. Next question also from Walter Bammert. Work in progress It was elevated end of first half year twenty twenty one. This is due to mix in components or just timing of orders. Now as I mentioned in my presentation, there are 2 different elements. 1 is clearly the buildup of a safety stock on materials, Which has increased inventories, but then the second one is also the hefty increase compared to a year ago in work in process, which is the execution of orders which have seen not invoiced to customers. Next question from Emral Basich, Baader Helvea. Do you see the second half year twenty twenty one book to bill ratio to go down to pre pandemic levels? We see we will see that this will go down, but we don't expect to pre pandemic levels as the markets are really Strong and the demand is strong from the markets, but we expect that the level from this 1.55% what we have Next question also from Emra Behzid regarding global lifetime service, what means longer term future in years approximately? Here, when Martin Dreyfmann talked about where we want to go with the service, we talked about midterm. Midterm for us is the range of 4 to 5 years at least. And if I may add, we pursued a target to have service as approximately 20% of overall Then the next question from Credit Suisse impact on margin in first half year twenty twenty one, sales mix versus input cost. The margin was favorable due to the sales mix. But also, as I mentioned before, we still benefited from, at today's level, Reduce the cost on the raw material. Where do you see a sustainable EBIT Margin going forward, including higher depreciation, amortization now due to the new plants. The depreciation will clearly increase a little bit compared to previous year due to this high CapEx spending. The EBIT margin going forward is what we always said. We always said that 2020 overall was an absolute The record year for Interol and also this cost reduction, what we had seen there, together with In local currency matching the 2019 top line, this cannot be repeated. This was extraordinary. We benefited a lot from the crisis. And we see 2018, 2019 as a base and then a continuation where we want where we also have the target And want to increase the EBIT margin slightly year after year. Then the last question from Mr. Rotter was just What's the current order momentum for the second half year? We see still that the market is continuing to be strong, Maybe not as strong as in the 1st 6 months where we had this incredible order intake, but the market continued to be strong. Next question from Mr. Walther Bamberg. Why do you expect the second half EBIT margin to be below first half year despite higher volumes and the strong operating leverage? The reason is because we will have over proportional invoice sales coming from our project business, so Conveyors and sorters, but also pallet handling and the project business by tendency overall has a lower margin than our product business. And the second one is also that we will have the material price impact in full in the second At least for the 1st couple of months, and we don't expect that this goes down. We expect that material prices have reached The high that they now slowly go a little bit down, we expect really that they come down to a new level early next year. The next question from Charlie Ferenberg. Growth in second half year will probably be slower than in first half year. Will sales grow in full year, say double digit? We expect A strong second half in sales. As I mentioned in the presentation, we have the order backlog. The risk, What we see is really on the materials and the supply chain side that there is a risk that components will not be available in the market or are available with A lot of delay. But from the pipeline, we see this as a positive momentum what we have. We see therefore also positive into The full year with the clear message that there is also the risk in the supply chain. The next question from Konstantin Hesse, Jefferies. Apologies if you have already answered this Can you talk about how the Supply chain shortage, the impact of sales performance in first half year and what do you expect in the second? I think these questions I have answered now. 1st half year, we had not the full impact. 2nd half year, we will have a full impact. And this then clearly has a also a pressure on the margin side, mentioned already before. Next question, Charlie Ferenberg. You said the margin will be lower in second half year than the first half year. What level do you think is sustainable? This is a question which is quite difficult to answer. We just say we expect a lower margin. And as You might know we will never give guidance on the margin, so this is the statement I can give you. The reason I mentioned before, it is The turnover mix will change. It comes over proportionally from the project business. Next question, Christian Hesse. Do you see EBIT margin in the mid to high 10ths sustainable? So this question, I answered also before. We take as a baseline In 'nineteen, our ambition is clearly that this will grow from there, Not on the levels like 2020, but we clearly have an ambition to also in the future increase and grow our EBIT margin. Next question from Serge Roeder. Lead times of existing backlog compared to pre pandemic, Lead times are much longer than compared to pre pandemic because also, as you can see, with the order intake of a +60%, This is quite a challenge. And this, together with the situation in the supply chain where you have Components where you really have to fight that you even get them, this clearly makes the delivery time longer than pre pandemic. And also in addition to this is the mix of the projects where we have now Projects with a longer already planned much longer delivery time due to the size of the project. The next question from Peter Muller, ROC Investment AG. Dear Mr. Hirsley, thank you for your information. After Such a strong order backlog, why is your outlook not more positive? What are the reasons for your cautiousness? Thank you for your answers. Yes. The answer I mentioned already before, the answer is clearly coming from the supply chain. If we would have everything available, What we need to fulfill the orders, then we would be positive, as also stated in our ad hoc from the market side, from the backlog side, we are positive. But overall, we remain cautiously optimistic due to these massive uncertainties in the supply chain. Okay. Thank you very much. At this point, we still invite and encourage you to put further questions Okay. There's one more coming in. A question from Mr. Serge Roster. Please allow in the future direct questions with the phone. Thank you, Mr. Roza, for this comment. As you might be aware of, we have quite a number of participants. So in order to offer the technological simplicity, we decided to go for written Questions in that situation. However, we are always available for you for phone call afterwards to discuss Also questions in person. Thank you. Okay. We are still waiting for any further question. We didn't receive any further questions for the moment. So I would like to close the session. Thank you very much for the interesting questions, and we look forward to our next Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your line. Goodbye.