WashTec AG

XETRA:WSU

Earnings Call Transcript 2021-Q1

[Operator]

Dear ladies and gentlemen, welcome to the conference call of WashTec AG. At our customer's request, this conference will be recorded. [Operator Instructions]May I now hand you over to Dr. Ralf Koeppe, who will lead you through this conference. Please go ahead.

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

Thank you. Ladies and gentlemen, I would like to welcome you to the WashTec Group's presentation of the first quarter results of the financial year 2021. With me here in the room are my colleagues, CFO, Dr. Kerstin Reden; and CSO, Stephan Weber. To begin on Slide 2, I would like to give you a brief overview of the topics, which we will cover in this call. I will start with presenting some update on the pandemic's impact on our operations. Stephan Weber will give some insights about marketing in times of the pandemic. And Kerstin Reden will present the figures of the business of the first quarter and will give you the update on our guidance that we published on April 20. Finally, we will have the Q&A session with the WashTec Board. Let me summarize our business model to take everybody on board. WashTec is the world's leading provider of innovative vehicle washing solutions. Our product range includes capital goods such as all types of car washing systems with the associated peripherals and water treatment systems. In addition, we offer our customers, the services and chemical consumables required to operate the system. We arrange financing and offer the management of operations, if desired. On Slide 3, we give some short update on our pandemic measures. As presented at the year-end call, we have successfully installed our self-test program as an additional measure to the hygiene rules. Employees who work in the office and plants can test themselves twice per week. The mandatory measures introduced by German regulators do not have a negative impact on our operations as all measures were already implemented before the regulations became effective. Extra efforts are currently spent to secure the supply chain to cover the volume on machine business and chemicals. We are proactively working with our suppliers to secure the business volume expected for the next 8 months. Currently, we do not see any dropouts, but we remain highly cautious, for example, with respect to the supply of electronics. I will now hand over to Stephan Weber.

[Stephan Weber, Chief Sales Officer & Member of Management Board]

Hello. Next slide, please. Slide 4, please. Ladies and gentlemen, also a warm welcome from my side. During this first quarter results call, I'd like to provide you a little insight into marketing activities in times of pandemic. As trade shows, a major sales lead generator since 12 months and likely for another 6 months not an option, we have, on one hand, saved significant cost for these events. But on the other hand, also lost the benefits out of it, lead generation and in-person exchange with customers. In order to compensate for that, we have used some of the money to enhance our Internet presence in all social media channels, display ads, Google Adwords or participating in the first digital trade shows in the U.S., Austria and Italy to create sufficient leads. And all the while, benchmark our performance against all major competitors. The good news is that the analytics that we have shown that in Europe we are second to none, in all of the above-mentioned disciplines, and have been able to strengthen our leading position. As such, we have today, a much higher lead count than we used to have even prior to the pandemic. The next challenge, once we have the lead is to convert it into a high-quality opportunity, whereby the customer might not be interested into a physical meeting. This brings me to Slide 5. Something we believe is currently only offered by WashTec. We simply invite a customer from anywhere in the world into a life washing event in our showroom in Augsburg called WashTec on Air: SmartCare - car wash live. That brings me to Slide 6. You can see a top view of our showroom setup. Therefore, we have installed 2 cameras in the wash bay of the demo center and 1 camera pointing at the activation system in front of the wash bay, which is the one that you see at the bottom left. During a Microsoft Teams or Zoom session, we share the screen so that the customer can define and program the wash program he likes to have and see by himself -- sorry, the wash program he likes to have and see by himself, a unique feature at the SmartCare. In other words, he can program the machine himself on the screen of the sales rep. No other machine can be programmed by the operator as usually a technician is required. We can provide the program with a unique -- we can provide the program as a unique name, and he can see that the program and name is displayed on the activation units in Augsburg. Then this program is started, and he can follow the execution on the screen, a very unique and personalized experience. Slide 7, please, SmartSite. A similar concept, we have developed to show the benefits of SmartSite, a software similar to a smart home system, but tailored to the cover sites. Since displaying and explaining the functionality of the floor heating, door locks, light settings as well as pump controls and so on in conjunction with the screen display of a handheld unit or smartphone is almost impossible on the live wash side. We have created 1 to 18 model, slide 8, please, that allows us to do all this live to anywhere in the world during a Teams or Zoom session. You can see on the picture that shows that model on the left-hand side and the handheld unit in front of it, so that we can really show this live in all aspects. If you would like to get a better insight into this, I recommend you to go to the Facebook side of carwashinfo, a leading German carwash trade magazine and have a look at the live stream for SmartSite that has been recorded. Likewise, today and tomorrow is the virtual ICA, ICA standing for International Carwash Association. Carwash show in Europe, where we will feature the above-mentioned topic as well as sustainable green car care chemicals. I hope you enjoyed this short excursion into carwash marketing. And this -- with this, I'd like to close and hand over to Kerstin Reden, our CFO, with the financials of Q1 2021.

[Kerstin Reden, CFO & Member of Management Board]

Thanks, Stephan, and hello, everyone. Starting with the financial highlights on Page 10. Group revenue was EUR 85 million, down 3% compared to prior year. The main reason for the revenue shortfall in the first quarter compared to prior year was again less revenue from key accounts. While we started weak into the year with soft revenue in January and February, we had a strong March and were able to catch up on installation delays. Since weather was good in March, revenue from chemicals and service also developed positively, allowing us to offset most of the revenue shortfall at the beginning of the year due to the harsh weather conditions. Comparing to last year, it should be noted that Q1 2020 was mainly not affected by the pandemic. Group EBIT was EUR 4 million, up more than 100% despite the revenue shortfall. The primary factors were lower staff costs resulting from actions taken last year and reduced travel. In addition, accrued risk -- of the accrued less risk reserve for bad debt since the agent structure of accounts receivable hedged improved. EBIT stands also here for adjusted EBIT as we only had insignificant one-off items in form of subsidies in the first quarter. Cash flow also developed positively despite significant less cash coming in from receivables, we were able to generate a positive cash flow of EUR 4 million. One major driver was less -- lower tax payments. In view of strong order intake in March, we updated our guidance. The positive development in order intake was driven by both key accounts and direct business. We now expect revenue to increase more than 5% as well as EBIT. Turning now to Page 11. On this page, you cannot only see revenue and EBIT development, but also the development of the gross margin in the middle of the slide. With the introduction of the cost of sales approach this quarter, we are also able to see results from operations before reduction of administrative costs. Looking now to numbers. Gross margin for the first quarter was 28.7%, up 100 basis points year-on-year. The increase shows that we were able to more than offset material price increases due to the current supply shortage by efficiency improvements. Moving on to Page 12, revenue by product category. As in fiscal year 2020, the revenue shortfall relates to continuing investment reluctance among key accounts. Direct business was fairly strong, so that revenue from equipment at EUR 71 million came close to the EUR 73 million generated last year. Chemical sales were nearly stable with EUR 13 million, slightly impacted by the severe winter conditions in Europe and the U.S. On Page 13, you'll find now revenue by region. The first quarter was dominated by Europe with revenue of EUR 73 million, representing 83% of total revenue for the first quarter. The good performance was driven by direct business. In North America, we experienced a decline of 23% or 16% on a constant currency basis. This can be explained by the exceptionally long and hard winter and continuing pandemic-driven investment reluctance among key accounts. Looking at EBIT by region on Page 14. EBIT was EUR 3.8 million in Europe. The decline of EUR 1.3 million year-on-year was driven by the foreign currency reside. Last year, EBIT in Europe included an exchange gain of $1.3 million compared to a slight loss of EUR 0.1 million this year. Adjusted for this FX effect, EBIT margin in Europe was 7.3%, slightly above prior year despite material cost increases. In the U.S., EBIT improved from a loss position of minus EUR 2.6 million to a slight loss of EUR 0.3 million despite a significant decrease in revenue. This clearly shows the success of restructuring -- of our restructuring efforts taken last year. The performance in Asia Pacific also improved from a loss of EUR 0.5 million to a slight profit of EUR 0.2 million despite the revenue decline of 9%. This is also the benefit of the restructuring taken in the region. Coming now to cash flow on Page 15. Free cash flow, including lease expense, increased by EUR 5 million to EUR 4 million. Apart from the better result, major factors were lower tax payments, higher advance payments and higher trade payables and a less steep inventory ramp up. Our cash position improved by EUR 4 million to EUR 5 million. We were able to reduce our liabilities towards bank by nearly EUR 8 million. Coming to our guidance. As already mentioned, we updated our revenue guidance last week after having a very good order intake in March, also coming from key accounts. Our order backlog is now significantly above last year level. Information about the upcoming AGM can be found in the backup of this presentation, including links and other information. With that, I'd now like to hand back to the operator and open the floor for question and answers.

[Operator]

[Operator Instructions] The first question is by Eggert Kuls of Warburg Research.

[Eggert Kuls, Senior Analyst]

Not so many questions today. But maybe on China, so you spoke about challenging market conditions there. And I guess this is not related to the corona pandemic. Can you please elaborate a little bit more what the problems in China are.

[Stephan Weber, Chief Sales Officer & Member of Management Board]

The problem in China is -- so the challenge that we are facing is that let's say, larger suppliers or, let's say, owners of gas stations, in this case, Sinopec, the largest in China and likely the largest in the world, has decided to offer likely for a limited period of time. But at least they do carwashes for free to provide you consume a certain amount of fuel. And that has, of course, an impact on all the, let's say, carwash operators only that who covers for the sense of the business of carwash. And as said, it has created a little bit of uncertainty in the market.

[Eggert Kuls, Senior Analyst]

And what do you expect going forward? Is that something you expect to continue over, let's say, months or even years?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

I mean, months, I would definitely say, yes. It is very -- it's not so easy to wind back, I would say with that offering. Years, is very difficult to say. I mean we have had similar things happening in other markets before, like Korea and Japan where eventually, today, everybody has to pay for his carwash again. But it's very difficult to -- we are monitoring this closely, but to give a time estimate, very difficult to say at this point in time, sorry.

[Eggert Kuls, Senior Analyst]

Okay. But in the end, also these guys need carwash equipment, so okay. Okay. Good. And second question, order intake, not -- which you do not quantify, was up, especially in March, as I understood. And so meanwhile, you have raised your guidance for the top line. So I can imagine that the positive development in order intake has continued also in April. And if yes, is that also related to key accounts and direct customers, so both important customer groups are more to one of these groups?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

I mean as mentioned in our, let's say, our talk, we saw, I would say, a very significant increase in March that we got confidence enough to say, okay, it's going to be more than 5%. So it's the development for the year, and that was the reason why we announced it. And likewise, in April, we have the same tenancy. And I would say, the interesting part is that Direct remains strong as it has always been. We have to say it really remains strong. There is no weakness visible. We show also very good figures. And on top of this, we see key account order intake. Yes. That's true. So all over, and in April, this is definitely still a strong continuation of what we saw in March. And likewise, what has to say in compared to previous year, April was one of the months where we had really the biggest hit. In March, the thing erupted all over the place, COVID. We had a major impact and uncertainty in April. So compared to previous year, we are, of course, outperforming, but we are also outperforming compared to budgeting or the intake in April. So overall, it's still a very positive picture.

[Eggert Kuls, Senior Analyst]

Okay. And are you satisfied with the mix? So did you get the amount of orders for the SmartCare you have expected?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

So we are still in budget, I would say. But we definitely hope to see more towards mid of year with all these activities that we are now -- we cannot physically show it, as I said. We have created a system how we can present it in that place. I have to say that plays well. People are, let's say, really impressed, but it's a one-on-one session that we can host. Other than that, many people don't like to travel, and we can't take it to exhibitions. But with this in mind and with the numbers that we have budgeted, we are doing fine. Thank you.

[Operator]

[Operator Instructions] There are no further questions, so I hand back to you.

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

So ladies and gentlemen, thank you very much for attending our Q1 call. Stay safe and looking forward to speak and hear you in the next call. Thank you very much.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.