Good morning and welcome everyone to SBO's first quarter 2025 conference call. We are recording today's call, and it will be available after this call finishes on this website, about an hour after the call has finished. Joining me today are our CEO, Klaus Mader, and our COO, Campbell MacPherson, as usual. We will start with a presentation of our first quarter results, followed by a Q&A. For joining the Q&A, you have two options. Either you dial into the live call through the Webex link underneath your live stream box, or you can type in your questions in the text field below. All right, without any further ado, I'm handing over to Klaus for the presentation of our first quarter results.
Morning, Klaus. Thank you so much for this nice introduction. Ladies and gentlemen, welcome to our Q1 conference call in the name of the Executive Board. I'm, as usual, doing this call together with Campbell MacPherson, our Chief Operating Officer. In today's conference call, we will talk about the Q1 business highlights, followed by the financial performance of the first quarter, first on the group, and then as a more deep dive by Campbell on a segment division level, followed by the market outlook, also including tariff implications, the hot topic at the moment. This is then usually followed by our Q&A. Let me start with the Q1 business highlights.
It is not a surprise to you, the market dynamics in the first quarter have been shaped by declining oil prices, increasing trade tensions, acceleration of tariff announcements, and this is resulting in an increased economic uncertainty on the demand side as well as on the supply side. This is definitely an environment that we are currently confronted with. I will talk, and we will talk in much more detail about that during this presentation. The results in the first quarter have been solid. Sales compared to the first quarter of the previous year declined, with a continuation of sales reductions in our precision technology division, partly compensated by increases in energy equipment. Results remained on a solid level, and EBITDA and EBIT margin even increased compared to the first quarter of the previous year.
The low sales driven in earnings in precision technology have been largely compensated by improved performance in energy equipment. More color about that than by Cam. The good news continues to be with the free cash flow that significantly increased to more than EUR 13 million in the first quarter of this year. This further reduced our net debt to below EUR 50 million, resulting in an excellent gearing ratio, single digit gearing ratio actually of 9.7%. In line with our strategy, the execution of our strategy, also some technology highlights that you will see in much more detail in the quarterly highlights that have been sent out some hours ago. Technology leadership is our claim. This is very important to us. You will find some examples of upgrading our down-hole drilling tools portfolio and equipment with digitalization, increased sensors, bidirectional communication of rotary steerable modules with MWD tools.
This is what we have to do in order to stay ahead and to be successful and ideally also taking market shares in a more challenging market environment. When we move to the key financial highlights, I already mentioned it, sales declined, but remained at a solid level of EUR 129 million. This is an almost 12% decline compared to the previous year's quarter and about a 4% decline compared to the fourth quarter of 2024. EBITDA and EBIT remained high at EUR 26.4 million for the EBITDA and EUR 18.3 million for EBIT. The lower earnings in precision technology partly or to a huge extent compensated by higher earnings in energy equipment. Also, we saw some support from foreign exchange needs. Free cash flow increased significantly from EUR 2.5 million to EUR 13.3 million.
The cash position as a result of the increased and positive cash flow generation stands at EUR 323 million, also up from the end of 2024. This results in a net debt of EUR 47.1 million and the already mentioned single-digit gearing ratio. The strong balance sheet continues to be solid with a 50% equity ratio remained compared to the end of 2024 financial figures. As an event already of the second quarter, we had our annual general meeting in April. The dividend was approved with 100%, so EUR 1.75 per share. This is resulting in a EUR 28 million payout in the second quarter. Dividend has already been paid out mid of May. Let's get a bit more into the details of sales and earnings on a group level before Campbell gets into the details on a divisional level.
The sales reduction by PT was significant, almost 30% compared to the first quarter in 2024. This is a trend that we have seen throughout the year 2024, also slightly below the fourth quarter. Energy equipment is double-digit up compared to the first quarter of this year of 2024 and partly compensating the sales . The EBITDA with EUR 26.4 million is almost on the level of the previous year of EUR 28.8 million. Also, the EBIT with EUR 18.3 million is almost on the level of the previous year of EUR 20.6 million. As I already mentioned, both divisions were contributing to it. Both divisions are clearly in the double-digit EBIT margin area. We also had the benefit of foreign exchange gains of almost EUR 3 million in the first quarter of this year. This also resulted in higher EBITDA margins.
On the financial results side, it's a bit better than in the same period as in the previous year with lower interest expenses because of decrease in interest rates, but higher interest income because of higher euro and U.S. dollar cash deposits taking the profit before tax to EUR 17.4 million and the profit after tax to EUR 30 million. Tax rate is now in the range that we are normally guiding between 20% and 25%. It was higher last year with 28%, but it was about 25% in the first quarter of this year. This is also the area that we expect the tax rate to be. Those were the sales and earnings figures on the group level. I'm happy to hand over now to Campbell for sales and earnings figures more on a divisional level.
Many thanks, Klaus, and good morning to everybody from my side. As Klaus says, let's take a little closer look into the divisions starting on the sales. As Klaus already noted, in Q1, group sales remained at a reasonable level, totaling EUR 129.2 million, a decline of 11.9% compared to the previous year and 4% sequentially. Precision technology will continue to operate in a challenging market environment impacted by trade tensions and the related lack of visibility, which has prolonged the customer's wait-and-see approach. Sales in precision technology were EUR 57.6 million, a decline of nearly 30% year on year, as Klaus mentioned, and 8% sequentially as customer demand remained constrained. In PT, we continue to focus on what we can control by further adjusting our capacities, costs, and resources across the division.
We have much experience in this, while protecting our core capability and protecting our capability that surrounds executing on our strategic goals. In energy equipment, sales grew by 10.5% year on year to EUR 71.6 million, driven by higher sales in the U.S. and ongoing expansion internationally. Bookings came in at EUR 108 million, 8.7% lower year on year, but largely comparable to Q4 2024 at EUR 110 million. The backlog amounted to EUR 124.1 million at the end of March, down from EUR 141.8 million at the end of the year. Moving forward on to EBIT. Despite the lower sales-driven earnings in precision technology, the EBITDA for the quarter came in at EUR 26.4 million and an EBITDA margin of 20.4%, down just slightly on the last year. Earnings in precision technology were, of course, impacted by that near 30% drop in sales, which drove capacity utilization down.
Still, EBITDA amounted to EUR 14.1 million and a margin of 24.5%. However, this was supported by some favorable foreign exchange gains that Klaus mentioned earlier. EBITDA in energy equipment improved compared to last year at EUR 13.5 million, reflecting an EBIT margin of 18.8% due to the higher sales volume and the more favorable product mix, and also an improved performance across the division compared to last year, demonstrating some of the effectiveness of the measures that we took in the first half of last year and some of the success in our strategic market expansion efforts. With that, I'll hand back over to Klaus.
Campbell, thank you so much for providing us with additional color on the divisional level. Let us move now to cash flow and balance sheet information. As I already mentioned it in the highlights, SBO is continuing to generate cash. It is a significant increase of the free cash flow compared to the first quarter of the previous year. Although here I have to mention, and some of you will remember the first quarter of last year, we had some timing impacts at some cash generating moving from the first to the second quarter. The obvious thing is we are continuing to generate positive cash flows, but also investing into the future and also investing into our growth strategy.
Because CapEx have been higher with EUR 10.1 million compared to EUR 7.8 million in the same period of the previous year, including the facility in expansion in Vietnam that is more or less done now. We are going to do the opening ceremony in two weeks' time. We have also invested in a bigger facility for WellBoss in Dubai at the beginning of this year. At the back of the Praxi's acquisition, we see significant growth and also the need for a bigger facility. You may remember it also from the capital markets update. We were talking about establishing the second headquarter for well completions for the Eastern Hemisphere in Dubai, and the bigger facility is going to support it. We are also investing in new technology, as I already mentioned, upgrading our fleet and also investing in additive manufacturing.
All those things supporting our pillars, market expansion, diversification, and also technology leadership. The balance sheet continues to be excellent with liquid funds now at EUR 323 million at the end of March. The equity in absolute figures slightly has been reduced, impacted by the decrease in U.S. dollar. You remember U.S. dollar was very strong at the end of December and weakened till the end of March. This had a negative impact on the absolute equity out of translation, currently translation impacts, but positive impacts from a positive earnings generation. The equity ratio remained at very solid 50%. If you would reduce the liquid funds from the financial liabilities, the equity ratio would even be at 70%. Continues to be very excellent and favorable. The cash increased to EUR 323 million as a result of the cash flow generation.
This positive cash flow generation, as already mentioned, further reduced net debt and improved gearing. Let us now discuss the market outlook. The market outlook remains complex and challenging is a very nice expression because it is exactly like that. We have been seeing that already in the first quarter of this year, but two major events at the beginning of the second quarter definitely accelerated the uncertainty in the market. Event number two was the announcements of significant tariff increases by the U.S. administration at the beginning of April. That is definitely causing concerns about global trade tensions, is creating economic uncertainty and some concerns about the demand side of our business. The second event was, for some surprising, the OPEC+ announcement of really now releasing the voluntary production cuts step by step and putting more oil to the market.
It was announced already starting with May, and this is definitely a challenge on the supply side. In that environment, when talking to our customers, when listening also to our customers, we see already impacts. They are increasing their uncertainty. They are talking about lower visibility. One of our key customers has made a statement of, instead of further increases of E&P spendings in the industry for this year, they expect high single-digit percentage reduction of E&P spendings on a global basis, maybe for the U.S., even a double-digit reduction in CapEx spendings. This is not good for the industry, and this is the situation that we are in. This is the situation that we simply have to manage.
With our global footprint and manufacturing locations across the U.S., Europe, and also Asia, we are well positioned also to adjust and optimize our supply chain when it comes to the tariff discussion. This is something that I would like to discuss with you also in more detail. What you see on this slide is our global setup. You are well aware of our locations in North America, South America, Europe, and Asia. I would like to provide you with a little bit more color. When you look on the left-hand side, you see the U.S., where we are definitely highly exposed, where we have 45% of our employees. To provide you with a bit more color, this region is predominantly a low region. What does this mean?
That 85% of what we are producing, manufacturing in the U.S., is also going to be sold in the U.S.. There are limited imports from other continents to the U.S. Predominantly, they are from Europe, to a much lesser extent from Asia. This is something that demonstrates that from this region, we do not expect severe tariff implications. When we move to the Middle East, where we have around 7% of our employees, this business is more a local for regional business, where everything that has been produced there, assembled there, is going to be exported mainly and predominantly to the Asia-Pacific, to the Middle East region, and also to the African region. When we look to Europe with the biggest facility, of course, here in Austria, this is a region with a local for global.
There is definitely the highest impact here because tools that are going to be produced in Europe are going to be sold, yes, to Asia-Pacific, to the Middle East, but also to the U.S. Here, we are manufacturing with 27% of our employees, and more than 90% of the business is locally produced and going global with a portion to the U.S., but of course, really on a global basis to Europe, to the Middle East, to Asia-Pacific, and to some extent also to the U.S. When we look at our Vietnam facility, where we have about 7% of our employees, this is a more local for regional manufacturing facility that is selling about 80% of its produced tools and products and components to the Asia-Pacific and also to the Middle East region. The tariff situation is a dynamic and is a fluid one.
Topic number one with our customers, it's all about tariffs. How can we mitigate tariffs by potentially delaying sales, also delivering sales to other regions, especially to our global customers who have facilities not only in the U.S.? How can we potentially share also this tariff burden? Here to remind you, we are not impacted by the 25% on steel and aluminum, but we are currently impacted by the 10% tariff, for example, between Europe, also the U.K. and U.S. Those are the current discussions that we are having with our customers. Impact to SBO is there. It is not very significant. Based on our current situation, and you know this situation is dynamic and fluid, the impact is less than 1% of our sales on our profitability. We carefully have to monitor and to observe this situation.
The bigger concern that I am having is what this is causing to our industry and also to our customers when we see this continuation of our wait and see approach by our customers. This means how are we going to navigate and also to adapt to this market? As I already mentioned, customer behavior is currently predominantly driven by how to avoid, how to mitigate tariffs resulting in lower bookings and also push-out discussions as the situation is clearing up a bit. This is causing capacity and cost-based adjustments on our side. We have reduced already headcount in precision technology in order to adjust to this situation. There are intense discussions with our customers related to tariffs, but it also continues our focus to diversify in other attractive industries, definitely also at the back of our additive manufacturing.
Operational excellence on the one side, managing this situation and diversification as the pillars of our strategy are the key themes in precision technology. With energy equipment, the sentiment and the bearish sentiment drives purchase outlook for the U.S., at least what we hear from our customers. We have not experienced that in the first quarter, but let's see. There is a lot of talks about this bearish segment, and let's take it from there. We continue also in energy equipment on market expansion, focus on the high-growth regions. I mentioned that we have doubled the size of our facility in Saudi Arabia. We are now moving to the bigger facility for WellBoss for our completions business in Dubai. We continue to diversify and get more and more momentum.
We received a nice order for geothermal just one week ago in the second quarter for a customer in the U.S. We continue with product innovations because this is key for us. I mentioned that at the beginning of my call, the upgrades of our downhole drilling tools portfolio with sensors, with digitalization, with working on next generations of our tools. This will incur some costs because the launch and the commercialization, and even here and there, some field test drives are just happening. This is key to be successful also going forward. The tariff discussion theme I already mentioned that we are going to take care of in both divisions, although the topic in precision technology is definitely the bigger one. On a more medium and longer-term perspective, the confidence in our industry remains.
The energy demand is going to be high, is continuing to be high, definitely on the back also of now the completion of LNG terminals, on the back of increased electricity demand going forward on artificial intelligence and also data centers. The short-term challenges with, on the one hand, OPEC , potentially OPEC+ supply increases and tariff discussions is here and there. As we say, we manage what we can control. We are experienced in that. Also not forgetting into the longer-term future with operational excellence, diversification, investing in our technology leadership, and also in market expansion. With that, we are at the end of our presentation. Thank you for your attention and interest. I'm handing over to Monika, who is going to introduce the Q&A session.
All right. Thank you, Klaus and Campbell, for those interesting insights. Definitely a challenging environment right now.
I think we have probably a few questions in the call. I would like to open it up for everyone who wants to ask a question to either join us in the live call through the link provided on the website or to post the questions in the text box again, also on the micro side. If you're in the call, please raise your hand if you would like to raise the question directly to management. I see we have a question already coming in from Baptiste in the written form. Baptiste from Oddo is asking if you could give an idea of the CapEx budget for 2025 after the EUR 10 million spent in Q1. Campbell, do you want to take that question?
Yeah, I'll take that question. So, Baptiste, as you know, we don't give any guidance on what we're doing through the rest of the year on CapEx.
What I can tell you is that the CapEx for this year is in line with what we did last year. As you have heard from us today, perhaps the market environment is changing. What we are looking at very carefully is areas of CapEx that we planned in the second half of the year and where we can reduce that. We are certainly not spending any money that does not really support us in our strategic objectives going forward. Hopefully, that answers your question.
Thank you, Campbell. Are there any other questions in the call? I see Richard is raising his hand. Could you please unmute and ask your question?
Hi, good morning. Can you hear me?
Hi, Richard. Yes, we can hear you fine. Thank you.
Perfect. All right, thank you. Just two questions from my side, please.
The first one is you mentioned several technological developments in your downhole drilling tools portfolio during the quarter. I'm just wondering what sort of feedback have you gotten from customers on these new products? Are they starting to support maybe gaining a bit of market share or supporting prices at all? Secondly, just coming back to the margins in precision technology in particular. You had EBIT margins of about 19% in Q4, that decreased to about 17% in this quarter. No, sorry, other way around. You had higher margins this quarter on lower revenue. Was most of this coming from FX? If so, are you able to show sort of the like for like if you strip out the FX impact? Thank you.
Thank you, Richard.
Thanks, Richard. Let me answer the first one.
In terms of technological developments, we really do have quite a lot of exciting things going on in our energy equipment division. If I take Vico, for example, our mud motor business, we've got coming to the market next year our Vico Plus. We are going to be the first motor in the market that is able to give you downhole measurements. This is really an absolute first. We give our customers much more information when they pull out the hole in terms of what happened with their equipment. It helps us continue to develop and refine our products much better. At the end of last year, Vico also introduced a new and updated power section called the S4 section, which gives us 15%-20% more power and about 15%-20% more torque.
That has already been accepted extremely well by customers in the North American market. With things like this, we certainly feel that we can do structurally better than the market and increase our market share in certain areas of the business. With regards to the margin in PT, you're absolutely right. This quarter, there were favorable exchange gains that increased the percentage margin. You know, in relation to PT, as we continue to go and we use down our backlog, we're a fixed asset-based business. The margin will continue to drop as we do not have the level and volume to support going through the business there. We try to mitigate that, obviously, as much as we can in terms of the cost size of the business.
All right, perfect. That makes sense.
Maybe just a follow-up as well on some of the customer hesitations for new orders. Do you get the impression that this hesitation is maybe temporary given just all the uncertainty? Or are you starting to see some projects actually canceled from customers?
I think it's a, I hope it's temporary to a level, certainly, Richard. I definitely think the tariff situation for customers in precision technology has been very upsetting for them. I do think that until we get past, is it the 9th or the 10th of July, and we have complete clarity about what the situation is going forward, I don't think we'll see much movement from these guys. Maybe post the end of July into August, we'll start to see some things maybe moving and coming back again.
All right, that makes sense. Thank you.
All right.
Do we have any more questions in the call? Looking to see here. Yes, we have another question from Nicholas Knipe. Do you expect a further deterioration in order intake in the coming quarters or a stable development from now? What are your takeaways from the talks with customers? Do you expect the lower order intake from the last two quarters to have a strong negative impact on your quarterly revenue development this year?
Okay, let me answer that. I think it's best to split this into two in regards to both of our divisions. Let's start with precision technology. I think there's, without a doubt, we're going to see a lower level of order intake in the coming quarters in precision technology because that's what our customers are telling us. I think we've elaborated clearly about the market conditions and all of the uncertainty behind that.
If we move to EE, I think there's a lot more cautious optimism with regard to EE, based on a lot of the structural changes we made in the business last year and how we're approaching the market, along with a lot of the new technological innovations that we're also bringing to the market. I anticipate that our order intake in the energy equipment division should, at least as long as the market continues, follow a similar linear trend from what we're seeing today in the current markets.
All right, thank you, Campbell. We have another question from Baptiste. I'm going to read it out. You presented quite an interesting slide with your industrial setup. The products that are sold in Europe and sold to the U.S., is it specific tools, equipment, or is it possible to be produced in the U.S.?
Okay, I think he means products that are produced in Europe and sold to the U.S. Are those specific, or is it possible to produce those also in the U.S.?
Good question, Baptiste. If we look at the range of things that we do, we have the same capabilities, more or less, to produce the same products within the U.S. This is some of the ongoing discussions that we have with customers at the moment. They're looking to see, can they get domestic production in the U.S. as opposed to purchasing it from Austria or maybe from Asia as well? This is ongoing with our customers to try and shift around the production to make it as tariff-free as possible and reduce the supply chain costs and the risks that we have. This is an ongoing conversation we have with people.
We have absolutely that flexibility with our businesses in the U.S. Interestingly, some of our companies in the U.S, our manufacturing businesses, have started to see inquiries for components that several years ago, we know, were offshore to Asia and China, and interest coming back about the capabilities to be able to manufacture those back in the U.S. Customers are really taking a very global approach and looking at their supply chain and seeing what they can do in the future to mitigate the risks.
Good. I think Baptiste had a follow-up question also posted here. In other words, your production in Europe is to respond to stronger demand than production capacities in the U.S. I believe you have already elaborated on that. Yeah, I believe that closes the question here.
All right, I'm checking again if there's any more questions of people joining us in the live call. I don't see anyone raising their hands. We're going one more time, one, two, three. I don't see any more questions. Hopefully we've clarified everything with the questions and answers we've already provided. If not, you know where to find us. Give us a ring if you have any more questions as a follow-up. With that, I would then probably close the call for today. As I've mentioned before, the recording will be available online later. As I've said, any further questions, reach out. We'll be there to answer your questions as a follow-up. Thank you very much. Have a good rest of your day. We'll talk to you again latest in a quarter from now. Bye-bye.
Ladies and gentlemen, thank you for your interest and attention.
Also, in the name of Campbell, it was a very interesting interaction with you, as always. Looking forward to seeing you and wishing you an.