WashTec AG

XETRA:WSU

Earnings Call Transcript 2022-Q1

[Operator]

Dear ladies and gentlemen, welcome to the conference call of WashTec AG. At our customers' request, this conference will be recorded. [Operator Instructions]

May I now hand you over to Dr. Ralf Koeppe, who will lead you for this conference. Please go ahead.

[Ralf Koeppe, executive]

Thank you very much. Ladies and gentlemen, on behalf of the WashTec Board; with my colleague, CFO, Dr. Kerstin Reden; and CSO, Stephan Weber, who are attending with me on the call, I would like to welcome you to the Q1 presentation 2022. Next slide, please.

Before my colleague, Kerstin Reden, will present our Q1 figures, I will give you a short news update on WashTec. Finally, we will have the Q&A session with the WashTec Board.

Next slide, please. Let me summarize our business model to take everybody on board. WashTec is the leading provider of innovative solutions for carwash worldwide. Our product range comprises all type of vehicle wash equipment as well as the associated peripheral devices, wash chemicals and water reclaim systems. As specialists in environmental-friendly vehicle wash system, we work continuously on innovations that contribute to sustainability mobility for today and tomorrow.

WashTec also offers comprehensive servicing packages and digital smart service solutions spanning the entire product life cycle, including equipment maintenance, chemicals, equipment take-back, financing arrangements and operator management. Furthermore, let me provide you with an update on impacts of the war and the COVID lockdowns in China on our company. The supply chain situation remains tense as already indicated at our last earnings call on March 31. So things are unchanged. And for this reason, we have not prepared a slide. The situation requires constant efforts to secure the supply chain with highest priority. We currently observe or reduced efficiency in our plants because of this issue.

Slide 4, please. Some update on our CO2 footprint, including reduction goals. Our carbon footprint represents the countries Germany, Czech Republic, the U.S. and China, and is totaled 7.2 tonne CO2 emission per year. These are the countries where we operate plants. The consumption covers all operations, including service. Our goal is a 30% reduction in CO2 emissions per million euro turnover in our business activities by 2025 from the base of the year 2019. In other words, 13.7 tonne per million euro in CO2 in the year 2025.

In total, we have already achieved a 14.9% reduction in our total CO2 emissions since 2019 per year. Further steps within the next few years, compromise -- comprises systematic data collection, including our national subsidiaries in countries without production footprint and the inclusion of step 3 emissions.

Slide 5, please. Of course, these and other topics concerning economic, environmental and social sustainability will be discussed in detail in our first stand-alone sustainability report to be published in Q2 this year.

Next slide, please. After 2 years of lockdown, the Unity Expo, the leading European trade fair for the retail petroleum and carwash industries, is opening its gates on May 17 in Stuttgart, Germany. Under the motto mywashtec - green car care, digital, sustainable, successful, we are going to present our innovation and product program, including wash equipment, chemicals and digital services. In case you are nearby, don't miss a visit.

I now hand over to Kerstin Reden, CFO of WashTec, to present the Q1 results. Thank you. Next slide, please.

[Kerstin Reden, executive]

Thanks, Ralf. Hello, everyone. We made a very good start into the year. Group revenue was up 19% to a revenue level of EUR 101 million. This is one of the highest revenue figures for first quarter in the company's history. We have a very good business momentum across all segments. All segments grew double digits. A very strong performance came from key account business in the U.S. compared to prior year. Machine revenue from key account have more than doubled. However, please note that the prior year quarter still shows a significant reluctance to invest as a result of the pandemic.

From an EBIT perspective, we saw a step-up of 31%, up to an EBIT level of EUR 4.6 million. This improvement is the result of the strong revenue performance, which was mainly volume-driven. Cash flow was lower than last year, mainly -- main reasons were increase in inventories, higher tax payables and also higher capital expenditure.

Moving on to the next slide. Here, you see the Q1 development of revenue, GP and EBIT over the last 3 quarters. As mentioned, we had a very strong revenue performance. GP was impacted by higher costs and also inefficiency in production. Due to shortage of materials, operations had to interrupt the production flow to wait for supply. This explains also the higher inventory level. In addition, more workers were needed to assembly and manage the parts.

As already mentioned, EBIT increased 31% to EUR 4.6 million, driven by the higher top line, higher GP. You might have the remarks that you would expect EBIT to be higher at such a high revenue level. However, apart from supply chain-related issues, we also faced higher OpEx, in particular, higher travel costs, higher energy and vehicle costs. In addition, we spent more on R&D to drive innovation and also to support operations and secure supply to the customer.

From a product performance perspective, next slide, revenue from machines and service increased 19% or EUR 13 million. Chemicals was up 23% or EUR 3 million. The Sahara dust helped here quite a lot to generate this exceptional good result in chemicals. We already highlighted we had a very strong growth in key account business, in particular in the U.S. Nevertheless, also direct business and service grew double digit, all business here from a higher base.

Despite the difficult geopolitical and economical environment, orders received remained stable in the first 3 months of the year. The figure through to the end of March was at the same solid level as the prior year. The order backlog was significantly higher at the end of the first quarter compared to prior year.

Continuing with the regions, all regions contributed to the revenue, of course. Europe showed a step-up -- a revenue step-up of 12%, the U.S. of 58% and Asia Pacific of 30%. Europe delivered an EBIT of EUR 4.4 million, up 16% year-on-year. The growth in the U.S. relates to a significant part to key account business from the order backlog that is from orders placed before we base our own pricing. At the same time, we had to take on more people to assembly and install the higher amount of machines. In addition, OpEx was impacted substantially due to higher travel and higher energy, entire vehicle cost, in particular, and also some extra cost. The U.S. result was in line with our expectations. We have increased our own pricing, but due to the gradual approach and due to the backlog, we will only see the effect step by step over the next quarter. Asia Pacific delivered good results. Revenue and EBIT were both up compared to prior year.

As a summary on the next page, the EBIT surge -- the improvement in EBIT can be referred to the volume-driven increase in revenue. We saw a negative impact from material price increases on GP of approximately EUR 2 million or 3% of cost of goods sold. Selling expenses increased as well mostly due to higher outgoing freight and higher travel. In addition, as already mentioned, we spent more on R&D.

Regarding cash flow, please go one slide down. We delivered cash flow of minus EUR 5.8 million. Main reasons were the increase in inventory, higher tax payables and higher capital expenditure. The significant increase in inventories relate to raw materials and work in progress, both caused by the supply chain disruptions. Net operating working capital increased relative to December last year and relative to March 2021. This increase was driven again by supply chain issues. However, KPIs, such as DSO and DIO, improved relatively to the prior year quarter. Equity increased to EUR 101.4 million. At the end of March 2022, the equity ratio was at 36%. This is slightly lower as in the ratio at the end of the last year due to higher total assets.

Coming to the last page, our guidance. Our guidance remains unchanged. Revenue is expected to increase up to 9% and EBIT is projected to be between EUR 45 million and EUR 48 million. This guidance assumes that we do not face significant interruptions in the supply chain and under major ramification from the war in Ukraine.

As a summary, Q1 was a very good start into the year. In particular, the strong revenue performance confirms that we are on the right track to reach the EUR 800 million revenue mark in 2030 by continuing to execute our strategy.

With that, I would like to thank you for listening and hand over back to the operator to open the Q&A session.

[Operator]

[Operator Instructions] And the first question is from Alexander Galitsa, H&A.

[Aliaksandr Halitsa, analyst]

Yes. Firstly, maybe on the pricing -- higher prices for your products. So it's definitely good to see the top line being so strong despite the fact that you mentioned that hardly any price effects have been in Q1 realized. The question is that, at least my understanding was that the fleet for the direct sales-related revenue that you will be able to see already prices having an impact in Q1, so I was just wondering why that wasn't the case here.

[Kerstin Reden, executive]

We do have a positive price impact, however, the effect is immaterial and offset by some negative mix effect. That's why I didn't particularly mentioned it. So you are right, we have some small numbers from the price increases in direct business, chemicals and services work.

[Aliaksandr Halitsa, analyst]

Okay. Understood. And then on the gross margin, now from today's perspective, looking into the remainder of the year, I think it would be helpful to understand kind of the expected dynamic that you foresee in terms of higher selling prices on the one hand and then input costs on the other hand and how that should impact profitability as we go into the next 9 months of the year? And maybe the -- yes, the question I have is based on the kind of price increases that you have implemented while also taking into account sort of the -- part of the backlog that is still with fixed pricing. How much higher average sort of realization price would you expect in the remainder of the year relative to what you have seen last year?

[Kerstin Reden, executive]

So altogether, at the end of the year, we expect a price -- to see price increase of 2% to 3%, same as I said last time. However -- and we expect in the end that we can offset the material cost increases. However, given the latest round of increases, it might be 2023 until we have the full offsetting of both price increases and cost increases. But we are working on that. We just reviewed our pricing again and decided on actions to be taken. So that in the end that we can offset the increases by our own higher pricing. But 2022 might be -- or probably is impacted a bit.

[Aliaksandr Halitsa, analyst]

Okay. But sort of on the net basis, I mean, you mentioned in Q1, you had 3% increase in cost of goods sold through higher prices, which wasn't offset by higher -- by your higher prices. So for the next 3 quarters, basically, you could also foresee sort of no negative effect or slightly negative? Or do you still have even room to -- you have to see sort of a leveling off, but not entirely that you kind of come out as net zero?

[Kerstin Reden, executive]

Our hope is to come out to net zero at the end of the year. However, next quarter will still be probably impacted. As you rightly mentioned, we have a strong backlog and also the gradual approach. So next quarter will still be impacted.

[Aliaksandr Halitsa, analyst]

Okay. Understood. And maybe building up on that, could you explain why Q2 2021 gross margin was that high? I mean you mentioned in the report that is due to higher revenues and structural improvements, but it almost looks like there's an outlier of 33%. Could you give color?

[Kerstin Reden, executive]

Yes, Q2 2021 -- you're talking about Q2 2021, right?

[Aliaksandr Halitsa, analyst]

Yes, yes.

[Kerstin Reden, executive]

Yes. Here, we had the effect from all the restructuring taken, you are right that lower level of people as we have now. At the moment, we also have more people, for example, in production because of helping supporting with the supply chain disruptions. All those issues did effect at that time, and we also have kind of a normalization in OpEx at the moment, with rather cost normalized and cost increase. We also have inflation in other areas.

And in Q2, we couldn't really see an impact from the price increases. But there are already price increases in chemicals. As far as I remember, but at that time, we also had a lot of efficiencies that we could realize and where we could offset the price increases. But now chemicals further increased in prices. And so then you have an impact.

[Aliaksandr Halitsa, analyst]

Okay. And maybe lastly on order intake or backlog dynamic. You mentioned that the order backlog was higher -- significantly higher year-over-year. At the same time, orders received remained stable on the solid level of last year. Can you put this stable orders received in Q1 into perspective for us? Does this indicate to you some demand softening? Or is it rather due to the high comparable base? I'm just wondering whether you're happy with the orders in Q1 you received or were you really hoping for better performance there?

[Stephan Weber, executive]

Yes. This is Stephan Weber speaking. I mean it has to do with the high level that we had in Q1 2021. Overall, the order intake that we see -- I mean, we always had a mix of the key account and direct business. And the order intake that we see this Q1 is very high as it was last year, also very high. Last year, we had a catch-up effect due to the corona in 2020. So we are very patient with what we are seeing now and the fact that we have still a super high order backlog has to do with the fact that we already reported by end of the year that we have already carried forward such a very high order backlog with significantly higher to whatever growth we have ever seen in this company.

So we are just maintaining that level, which is very pleasing at these levels. So we are not diluting anything of that high level. We are still able -- despite by having a significantly higher revenue for the first quarter, we are still maintaining a very high order backlog.

[Aliaksandr Halitsa, analyst]

Okay. And would you be able to confirm that as last weeks of Q1, you haven't seen any change in demand dynamics from customers?

[Stephan Weber, executive]

Yes, I can absolutely confirm that because -- it's actually a very fair question from your side because we also had to, as I described during the investor conference, we are working very much alongside our funnel analysis, where we see our inventory -- look at the funnels and we have a prediction for Q1, and we actually nailed that, I have to say. I mean what we saw is what we got. It was very pleasing with all the disturbances that we saw in -- due to the Ukraine situation and Russian war. We were slightly concerned.

Let's put it this way that this has maybe also an effect on the investments taken in other countries. But what we saw by end of or Q4, in other words, our forecast for Q1 was strong, I have to say. I mean we didn't see, of course, the order intake that we expected in Russia, Ukraine because this states simply no order intake. However, that was also overcompensated in other regions. So we are -- we cannot -- even slightly better than what we forecasted, which was very pleasing to see. And to answer -- maybe answer the next question, we also with the same method, I'd say, funnel analysis, we also see a good Q2 from number of inquiries and the quotations that we are asked, so we are also positive that we can continue with that.

[Ralf Koeppe, executive]

And when I add that, especially the key accounts that are in the upstream business are having excellent cash flows generated by the higher oil price. So that impact we discussed it the other way around 2 years ago or 1.5 years ago now also is present.

[Aliaksandr Halitsa, analyst]

Okay. And last question that I had. You mentioned the interruptions and lower productivity in plants. I think last time we spoke, this was hardly an issue by then. So from today's standpoint, is it something that you expect to linger with you? Or is it something that you kind of have found this solution in the meantime?

[Ralf Koeppe, executive]

Well, let's say, the thing is what we see at the end of the year and the final end year figures. Now we are in the year process. You know that there are lockdowns. You know the ships waiting for unloading and loading in Shanghai. And we're working hard that we can maintain our capability to deliver to the customer. But certainly, at the moment, when I look how many machines are still to be completed, even it's like 1 or 2 weeks that they are waiting for some parts. We have a certain impact that we see in the figures. As I said, the situation is difficult, and we act as the last year quite fast, but the effect is there. And I don't expect that these effects -- or the work will be easier during 2022. But that's already what we mentioned in the investor call or last earning calls as well.

[Operator]

The next question is from Eggert Kuls, Warburg Research.

[Eggert Kuls, analyst]

Yes. So most of my questions have already been answered, but there are still some questions left. So maybe with regard to the order intake and the order backlog. So you never give precise figures on that. But what -- would be interested in this, is the order backlog at the end of Q1 even higher than at the end of 2021?

[Stephan Weber, executive]

No, on a similar level.

[Eggert Kuls, analyst]

Similar level. Okay.

[Stephan Weber, executive]

Slightly higher, slightly higher, but not significantly higher. Let's call it a similar number.

[Eggert Kuls, analyst]

Okay. Okay. So -- but overall, nevertheless, a level, which is, I think, promising at least for the top line for the remainder of the year. So...

[Stephan Weber, executive]

As I indicated also during the investor conference, the challenge is -- I mean, the way we look at it is more fighting the margins, getting the price increases so and whatever else in the top line. The way -- if it continues the way it is, we are pretty sure that we will meet our forecast, that we will be.

[Eggert Kuls, analyst]

Okay. Okay. Then with regard to China, so we have a lockdown in Shanghai, you already mentioned. And so there are rumors that also in Peking, there could be a lockdown. So the situation could tighten even further in this region. So what do you think about that?

[Stephan Weber, executive]

I mean a few opinion on it. I mean that's a very -- I mean, I would say said, sorry, I'd like to say that doesn't help. Overall as you know, the business that we are doing in China as of now is not super significant to the group. So the impact luckily is also not super significant. However, and plus, we have the flexibility in the plan, also ways to catch up, in other words, if this comes back. It's early in the year, we can catch up in order to come up at the final figures.

At the same time, we are reporting APAC together, and we are seeing a super, super positive development in Australia as it stands now. So for the region, I'm pretty confident that we can at least [indiscernible]. However, we were actually hoping to come out better. But now with this situation in Shanghai where even our factory has been closed now for 3 weeks, this is becoming a challenge. But like I said, it's also not much we can do about it. In other words, luckily, although this is not our future perspective as we stand now. It's not so significant for the group performance. I believe...

[Eggert Kuls, analyst]

Yes, of course, a lot of external factors you cannot change, of course, yes. And one question to the P&L. So as often in the past, you had a rather high tax rate in Q1 of 48%. So last year in Q1, it was around 40%. Does that mean that we should expect for the full year a higher tax rate than last year? Was it close to 31%?

[Kerstin Reden, executive]

Well observed. Yes, we had to pay capital gains tax. That relates to internal distributions to be able to make the external distribution quite complicated stuff. So this month or this quarter was particularly burdened by this, but you should expect a normal tax rate at the end of the year.

[Eggert Kuls, analyst]

Okay. Good to hear.

[Operator]

We have a follow-up question, and it's from Alexander.

[Aliaksandr Halitsa, analyst]

Yes. Also a question on the digital offering. Could you provide an update on the number of machines that have been connected so far? I believe last number you gave out was 6,000. Is that -- how much is that in the meantime?

[Stephan Weber, executive]

I think we gave the numbers at the Investor Day, so around 6,000. I think this is a onetime disclosure. We don't plan on giving you updates quarterly on that as an average price and so on. But this is more or less continuously growing because as we explained, every machine leaving the plant is connected.

[Aliaksandr Halitsa, analyst]

Makes sense. I should have asked -- phrased it differently. So that makes perfect sense. And maybe also on Sahara impact, would you be able to somehow quantify how much was that kind of extra in terms of chemical sales?

[Stephan Weber, executive]

There was a high peak in the week, you know, all-time high in 1 or 2 weeks.

[Ralf Koeppe, executive]

No, we had the highest March ever, let's put it this way. That's why we also disclosed that the Q1 showed significant growth in chemical sales all over the world. I mean mainly in Europe, it could be at Sahara, the situation and -- was a strong contributor also to the growth in the top line. So I mean, so far, so good. This has been the best quarter in chemical since ever, I can say.

[Kerstin Reden, executive]

Yes. Usually, our growth rate is at 7% and up 23% is particularly high.

[Ralf Koeppe, executive]

The weather was bad and then that came to Sahara, so some of the orders were orders that were had to be made necessary because of the Sahara sand washes, but also because the good weather kicked in. So we observed this effect, and it was overlaid by the Sahara dust. That's why we have these high rates.

[Operator]

At the moment, there are no further questions. [Operator Instructions] We have no further questions. I would like to hand back to you for some closing remarks.

[Ralf Koeppe, executive]

Yes. Thank you very much for attending the Q1 call. As a reminder, on May 16, we have the Annual General Meeting 2022 as a virtual meeting and the Q2 call and figures are due on July 28. So thank you very much for attending and hope to see you soon. Bye-bye.

[Operator]

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