Good day, ladies and gentlemen, and welcome to today's Cardex AG Telephone Conference to Present the 20 18 Half Year Results. Today's conference is being recorded. At this time, I would like to hand the call over to Mr. Edwin van der Geef, Investor Relations. Please go ahead, sir.
Yes. Hello, ladies and gentlemen, welcome to our conference call. I hope you have found all the information on the website, the press release, the semi annual report and the access to the presentation. I hope you're all ready so that I can that we can start. I would like to hand over to Thomas Reist, who will start the presentation.
Please, Thomas.
Yes. Hello to everybody. Also, warm welcome from my side. You see on slide the agenda. So the introduction of the financials for the half year close will be done by myself.
Then I will hand over to Jens Vankeren, CEO, in regards to the divisional reports, the outlook and at the very end of the call, the Q and A session. So first of all, the highlights of the first half year twenty eighteen. I will guide you through these highlights and later on the financials on group level. CapEx Group could increase volume and profitability at high growth rates as in recent years. The market environment is very positive.
Both divisions could profit from this positive momentum and further strengthen their strong market position. Products Remstar and Kartexamlog reported double digit growth rates on bookings and EBIT level, and both divisions further increased their EBIT margin. Free cash flow is slightly below the net profit but on a solid level. And the tax rate is in the communicated target range. Before we have a look in the details of the half year close, I would like to share with you the development of key figures over the past 5 years.
First, net revenues. There we see that net revenues went up and with a higher rise than in the past couple of years, only beaten by the change from half year 2014 to half year 2015, and this leading to a compound annual growth rate of 7.3%. The operating results, EBIT and EBIT margin show that there is an accelerated growth. So EBIT rose higher than in the past couple of years. And so also the EBIT margin The compound annual growth rate here is at 18.2%.
Net cash flow from operating activities. There is here an up and down. It seems like a pattern, but it isn't. So there's no pattern for this up and down, but we are influenced by project status and the prepayments from customers. So this might still go up and down in the future for each cutoff date.
Equity and equity ratio. The equity has increased by €9,000,000 dollars Equity ratio slightly went down compared to the last 2 years, but this is only because the balance sheet extended. I will give further details later on. So let's dig into the half year closing results, the income statements. On bookings levels, we see that bookings went up by 17 point percent, whereas the main contributor was new business from both divisions, leading to a very high order backlog.
Order backlog went up by 32% or €54,000,000 to a record high level of €222,000,000 So they received that the visibility has increased from 5.5 months to almost 7 months. Net revenues went up by 9 point 2%, and gross margin gross profit margin, sorry, gross profit margin went slightly down by 0.3%, just because the marginal costs went slightly up. In absolute figures, the gross profit went up by 8.4% or in other words, €5,400,000 The OpEx rose under proportionally by 4.1%, leading to an EBIT of €23,600,000 euros This is an up compared to previous year of 18% or 3,600,000. Also, the EBIT margin, as already mentioned, went up by 0.9% points to an EBIT margin of 12.1%. The financial result is €500,000 better than previous year.
This is based on lower exchange losses than in the previous year. And here, on this slide, relevant is that the tax rate is within the target rate range. So 26.1% went slightly up compared to last year. But as you remember, based on the U. S.
Tax reform, the target range has decreased to around 26% compared to last year where we have a target range of 27%. Results for the period of EUR 17,000,000 has significantly increased by 21.4 percent or EUR 3,000,000 The balance sheet. As mentioned earlier, the balance sheet has extended. This is based on the seasonal rise of the current assets. Current assets went up by €22,800,000 or 11.3%.
This is mainly because the cash position went up. Just remember that the reduction of nominal value happens just after the half year close. So this cash position goes up and up until the half year close, and then we pay dividends. So the cash position increased by roughly €16,000,000 or roughly 14%. And counterpart on the equity and liability side of the balance sheet is equity, which also went up by $70,000,000 or 12%.
Please consider, as in the previous years, the reduction of nominal share value happened at the 3rd July this year. So this is reducing the cash position in Q3 by roughly €24,000,000 So cash flow statement. Here we see that net cash flow from operating activities is below previous year with €19,400,000 despite the fact that in the same period of time, the net profit increased by €3,000,000 dollars This is purely due because of the higher net working capital level. Net working capital compared to the beginning of the year went down by €2,600,000 but not as heavily as in the previous year, where net working capital position went down compared to the beginning of the year by €7,700,000 Main position there is the accounts receivables, which again decreased by €5,700,000 this year. But in the previous year, this position decreased by €9,400,000 dollars Net cash flow from investing activities is slightly below previous year despite the fact that we have spent more for CapEx.
We had roughly EUR 2,000,000 more CapEx than in the last year, but the executed acquisition was at the lower value. Resulted free cash flow amounts to EUR 15,600,000 so EUR 3,500,000 below previous year's free cash flow. Thank you for your attention. I would like to hand over to Jens Vankem for the division reports and also for the outlook.
Can you click forward, please? Yes, Jens. Good afternoon, everybody. This is Jens. I would like to talk about both divisions.
1st, to start with Remstar as usual. Remstar had a fairly positive first half in 2018. You can see that all the way through down the P and L, starting with the bookings, where we could record double digit bookings close to 20%. Most regions have contributed to that, as you can read, is North America, Asia and all of Europe. Very few exceptions in Europe, some countries where we did not see the growth as indicated, but most of Europe did contribute also to the growth.
And if I do not mention our Middle East, Africa, where we continue to see some political and economical turmoil and therefore not developing in line with our own expectations, but that's really the only region where we did not see the growth as expected. Revenues. Net revenues and profitability did improve further. Net sales or net revenues, the 13% increase year on year, slightly below the bookings, same pattern as we did report for the financial year end closing 2017. We did experience some capacity constraints in the organization, both in the supply chain as well as in the field.
And in addition, we did see a similar pattern on our customer side, where our customers had to delay projects because of their oven capacity constraints. So that, in combination, did contribute to a slightly lower increase in net revenues compared to the bookings levels. That together leads to a, what I call, record high order backlog by the end of June with EUR 160,000,000 which gives us a fairly good visibility into the second half of twenty eighteen. Life Cycle Services did defend its net revenue share of close to 30%. So as you all know, we are targeting close to 30% or 30% net revenue share for our life cycle services as our backbone and longer term income stream, and we managed to achieve that as well.
Other trends started continue to invest in research and development, more on the development side, continuation of our vertical software, our Cardex software suite. We did start, as promised, to invest a little bit more careful into our supply chain, but in line with the bookings and net revenues development. And with all of that, I think it's been called strict cost management. We managed to increase the EBIT margin further from previous year's 14% to now 14.5% or $3,300,000 more EBIT by the end of the first half year. On the revenue split, it's also to be mentioned and you will see that on the next page that the net revenue development took another good step.
This growth rate over the last years of 7.9%. The right hand side shows the operating result, the EBIT and the EBIT margin, as already indicated, EUR 23,000,000 over EUR 20,000,000 last year, same period. And the sales mix, the net revenues mix low shows that we manage the life cycle services with 30%, 31% to be correct. The new business was €107,000,000 or 67%, and the only slightly conservative number or the not so good development in line with our expectations is the OEM business, where we saw some stagnation. We did not manage to secure more partners in the course of the 1st 6 months.
And therefore, the development of our OEM business is below our own expectations. I think that concludes it for RambStar. And if we go to the next page, we will see the Cardex Amlog division. Cardex Amlog managed to increase the bookings by almost 10%, so a 50,000,000 49 point 4,000,000 to be exact, bookings levels for the first half year. Net revenues, however, have been below previous year's levels by 4%.
That's mostly related to bookings principles we are applying, POC contracts, work in progress, where we expect closing of these projects and therefore, an increase in net revenues in the first two months of the second half of the year. So in July August, these net revenues will pick up in the new business side. Gross profit margins increased partially due to the net revenue mix, but also to better cost control in the project. We have an under proportionate growth of OpEx levels despite our increased investments into the sales organization, and all of that leads to an improved EBIT margin of close to 5% or €1,800,000 If we then go to the next page, that's the development over the years. We can see the already reported fluctuation in net sales, I would say, a little bit up, a little bit down.
That's mostly because in 2016, we cut back a bit. And since then, we are on a cautious growth path for the analog division. And you can see that also on the EBIT margin development, this is 5%, with the exception of 2016, the best first half year of Amlog over the last 5 years. The sales mix, the net revenues mix from below, You can see the life cycle services. I would like to pick on the life cycle services with €17,000,000 over €13,000,000 last year same period.
In 2017, we saw a delayed development of refurbishment projects in the first half, whereas in 2018, we managed to get more revenues from the refurbishment side in. We also managed to increase the standard services, and that led to an exceptional 47%, I would call that exceptional 47% net sales share of Lifecycle Services, also due to the fact that the new business, as already indicated, came in at €17,000,000 and not as expected maybe at €20,000,000 25,000,000 that we would otherwise have seen. And that brings me to the outlook. Already did give some indications for the outlook in the descriptions of the first half year. Overall, I think we are looking very positive to the second half of the year.
We see a continuation of the positive development. We based that optimistic outlook on 2 things. One thing is obviously the continued global trend of growing demand for efficient infra logistics solutions. So the market environment so far does not change, which gives us some momentum also from the market. The second thing is we see that also on a regional performing well in the second half of the year.
Performing well in the second half of the year. And third, we also look on a very healthy and very strong order backlog, which should support quite a good net revenues development in the second half. For Cardex Remstar, that will drive the net revenues and also should generate pretty good bookings for the second half for CardX MLOG. It will mean a continuous improvement process, net revenues increase and also a very strong focus on profitable growth. The whole organization, but mostly Cardex Remstar will invest continue to invest into its supply chain to eliminate the current capacity constraints.
We will also continue to add people to the organization to bring talent in, but also to close some capacity gaps when it comes to the organization itself. And we should also continue to invest into our IT infrastructure in order to continue our path of operational excellence, improving the internal efficiencies and do that with regards to longer term improvements on our profitability levels. We expect similar levels of investment into our R and D in both of our 2 divisions to improve our technology base and continue the sales success. And all in all, we expect that we will come in within the communicated financial target ranges by the end of the year. And with that, I would like to close and hand back to Edwin for the Q and A session.
Thank you very much.
Yes. Thank you very much, Thomas. Thank you very much, Jens. May I ask the operator now to start the Q and A session, please?
Certainly. Thank Thank you. We will take our first question today from Charlie Ferenberg from AWP. Please go ahead.
Hello, gentlemen. Thanks for taking my questions. Does the bottleneck in your supply chain slow down your growth in a way? And the second one would be, could your business be affected by the escalating trade disputes in U. S.
And Europe and Asia in a direct or in an indirect way?
Yes. Thank you, Charlie. I think it is Jens that's going to answer both questions.
Yes, I will. The first was the capacity constraints. So far not, I would say. If we lose and the answer would be given if we consider lost projects, where we lost because of extended lead times, because what we see is extended lead times from order intake to delivery to the customers, which sometimes is a competitive disadvantage. We did lose some, but I think we're losing in the normal loss ranges so far because some of our competitors have similar type of capacity constraints.
It's not just us. It's also our subcontractors suppliers who do have these things and they supply partially also to the same competitor levels that we are having. So does it impact it? It may by a few percentage points, but I wouldn't think that is substantially impacting our growth expectations. However, that will not last forever, and that's why we investing into the supply chain in order to compensate or eliminate those capacity constraints as fast as we can, so that we, in the end of the day, are back on even levels with everybody who can supply within shorter lead times.
2nd question, trade conflicts. So far, we do not see any impact. I think that partially, it's because we're selling regional, we do not export, for instance, from China to other parts of the world. All of our machines are still coming to the majority of its composure from Germany. And therefore, we are not seeing any constraints from the U.
S. I think that's what you're mostly talking about for equipment that's coming from Europe. Haven't touched our industry yet. What might happen is, but that's the thing that we are watching is the weakening of the Chinese currency, the yuan. Not sure this is going long term, but that's part of the economical war that we are seeing.
And that might impact to some extent the import into China because obviously customers will buy more expensive than they otherwise would do. So that's the thing we are monitoring for the portion of our business where we export from Europe into China and how much that would effectively impact our business locally in China.
Thank you very much.
Does that answer your question?
Yes. Thank
you. Welcome. We will take now our next question from Michael Lichtbar from Bank of
Good afternoon, gentlemen. Can you hear me?
Yes, Michael, we hear you.
Okay. Thank you. I would have a couple of questions, maybe at the first one regarding net working capital. What are your reduce accounts receivables further? And also part of this, do you expect your inventories to increase because of these shortages?
Maybe you can you want to create some safety stocks. So this would be my first question.
Okay. Thomas is going to answer this, I believe.
Yes, sure. Net working capital, not sure whether this was a misunderstanding. I do not believe that we further can reduce the accounts receivables because it's clear whenever we have more net revenues, then the accounts receivables will go up. What I wanted to say is that we have a seasonal pattern. So at the year end, we have normally a rather high accounts receivable position, which we reduce to the half year.
And this is the seasonal pattern, what I mentioned or what I meant to you, Nicole. So it is not my expectation that we will further decrease the accounts receivables whenever we have such high net revenues and such high bookings. In regards to the inventories, they have increased already. So they're work in progress. The WIP has come up as well as the inventories.
We are not sure where the peak is. We are sure that there is, at in a certain point in time, a peak point where it will go down again. But this really depends on the capacity constraints, as mentioned Jens just before. When will we be able really to reduce these constraints and reduce again our backlog?
Does this answer your questions?
Yes. So basically, for the full year, we should expect negative impact on free cash flow from net working capital?
Correct. Correct.
Okay. And then another question just regarding your visibility of almost 7 months. Could you then give us maybe a more detailed guidance? Or can you maybe just remind me what are these communicated financial targets that you want to achieve? Because as far as I understood, you only have targets for the midterm, which is 3% to 5% and that seems a bit conservative for this year.
Yes, absolutely. Just remind that the 7 months I mentioned before, this is also including AMLOQ. AMLOQ has a different business model. So they had always a higher visibility that used to be 9 months. Now it's probably 9, 9.5, 10 months.
And also, Cardiacarencepa increased. So the visibility increased. That's true. That's correct. But you know us, we are quite conservative.
But if you do your math, if you see how high our backlog is, then one can expect that we will stay above the 3% to 5% growth within the next couple of months. But again, we have a visibility of 7 months. So this is no indication for a long period of time in future.
Yes. But for 2018, it's very likely that this will be substantially above the 5%.
From a gross point of view, yes, Michel. But from a profitability point of view, I would expect that we are in the targets in the target line that, that is communicated.
Okay. Okay. Makes sense. And then maybe kind of a small question. I've seen that with analog, you also made some revenues in the Americas, very small ones.
Is this a start of a new trend or is it just one off? And I mean with the trend, you are investing quite substantially into the your sales network in North America. So is this kind of indication of these efforts? Or is it really just a one off?
Jens, are you?
First of all, it's not a trend. 2nd, it's not the strategy to bring mLog into the Americas. So it must be one of the existing customers where there was some added activities. And I would believe that this is related to services business, spare parts business.
So no,
on top of my head, to be fair. But what we haven't done is that is, I have always really confirmed. We haven't changed the MLog go to market strategy. We will focus MLog still on Europe, adjacent countries, step by step. That's been reconfirmed.
So it's not the intent to bring MLog business outside of Europe, not in a strategic driven way. Opportunistic with existing key customers, that's a different discussion.
Okay, understand. And maybe last question, just regarding your organic growth. There was nothing mentioned about it. I would imagine that in terms of organic growth, your growth rate was probably even higher than the reported one. Would this be a correct assumption?
Not sure that I understood the question correct, Michael.
Just a ForEx point of view. Yes, ForEx was probably a negative impact there.
Yes, this is true. Very minimal, yes.
Yes. This
is true. We had a negative FX effect, but it was not dramatic.
And can you give me a number?
Yes. To be honest, I don't have the number right here.
Okay. That's fine.
But it's really not really not substantial.
Okay. Thank you very much.
Thank you. And we now take our next question from Benjamin Baber from Berenberg.
Hi, thanks for taking my questions. Just a couple of questions from my side. Firstly, on the gross margin for both divisions actually, just looking at Remstar, I mean, I noticed it's come down, I mean, marginally. I'm just wondering the main reason behind that and also where maybe where you see it going in the second half of this year and also into next year as well? Is there still a lot of scope to improve there?
It's one for you, Frank.
Yes, yes, sure. Hi, Benjamin. Gross profit margins, Remstar, impacted by 2 effects. 1 is margins in the market. In order to achieve the growth, we had to also defend market share to some extent.
So we lost a bit of margin in the sales organization. So head to head with competition, that's one element of it. The other thing is we usually are able have been able for the last years to compensate that by the supply chain, economy of scales and fixed cost aggression. With the capacity constraints, we are seeing both in our own factories, but also with our suppliers, we could not fully compensate those margin losses in the market place, and that led to, I believe, it's 0.3% gross profit margin deterioration. Going forward, I think that's going to stay stable.
The only concern we are having right now is the steel price development, so raw material costs to our organization. That's the only but truly substantial number that I'm not so sure about. I think we could we did secure with hedging, with purchasing contracts the next half year for this deal. But then it remains to be seen where the steel prices are going. It could go either way.
It could go down, as everybody says so far or it could stay stable. That's the main impact on our gross profit levels going forward. All the other elements, I believe, will remain stable, or I would like to see them to improve marginally in terms of own productivity and also market pricing levels.
Okay. Understood. So presumably there's a limited pass through of fuel prices and that you can do?
Exactly. That's the only that's the thing that's pretty much related to a slightly different playing field when it comes to racking suppliers, very, very material driven business where the community of the racking suppliers obviously somehow agrees to pass through material cost, whereas in our business, it seems to be common not to pass them through. So stable market prices, stable or slightly reduced market prices versus increasing cost on the other side, which you have to somehow compensate for this internal productivity and efficiency gains. Okay.
Understood. That's very clear. And then just on the capacity constraints then, I mean, you mentioned obviously the investments into that. Can you maybe quantify that in any way and kind of give maybe a time line when you think these will be sort of listed and that constraint?
Time line is easier. The first stage of improvements already kicking in, but to a minor level. And we're talking a major capacity increase in our bigger factory in Europe, in the ramp store. I think that will become effective earlier next year in 2019. That's subject to lead times by our own suppliers for new machines.
They're seeing the same market demands, and therefore, their lead times have increased from what was previously between 4 to 6 months now to 8, 9 months from order to installation. And then the next levels are currently under discussion, and that is capacity increases more on local levels, not so much in Europe, to also be able to get closer to the market.
Okay. And if you had to kind of as an approximation, what sort of percentage capacity increase is that roughly?
That's the harder one because it's linked to the product mix. It's not you can't get a generic answer as to how much it is because it's really subject to what we're investing and where. For it ranges but it ranges in the single digit ranges so far. What we have initiated so far, we're talking single digit increases in capacities.
Okay. And then the last thing on that topic is then the associated cost with that. So how much more is there to sort of invest into that?
So what's So what you
can expect till the end of the year that we will have roughly €10,000,000 of CapEx all
over the group.
This might go up slightly in the next 1 or 2 years, but this will be more or less the next level of the future CapEx.
Okay. Got it.
So we have 6, 7 so far and it will be you have to put actually 10 in your model for the next 2 to 3 years.
Yes. Okay. Understood. And final question then, just lastly, more broadly speaking, on the topic of M and A, is that something that yes, anything potentially on the table there? Or is that something that's still maybe kind of longer term potential?
Jens, would you like or shall I?
You can.
Well, actually, we are as we are constantly looking at interesting targets. And it's not that we are not doing nothing here, but we cannot communicate anything. I mean, anything I would say, it would be at home information. But be aware that we are that we're really taking care of that, that we can reinvest our money in the business. Okay.
Great. Specific to communicate now.
Yes, sure. Okay. Thanks for your answers.
Thank you very much. Ladies
and gentlemen, yes.
Gentlemen, it appears we have currently no further questions in the queue. So I will hand back to you for any additional or closing remarks. Thank you.
Okay. Thank you very much, operator. Then I would like to thank you very much for attending our call. And as you know, we are open to all your further questions. Just let us know, We're happy to answer them.
In that case, I would like to thank you very much. Also, for Jens and Thor to be with us, and I wish you a nice day. Thank you very much. Bye bye.
Thank you. Bye bye.
You very much. Ladies and gentlemen, this will conclude today's conference call. Thank you for your participation. You may now disconnect.