WashTec AG

XETRA:WSU

Earnings Call Transcript 2023-Q1

[Ralf Koeppe, executive]

Ladies and gentlemen, on behalf of the WashTec Board, together with my colleague, Andreas Pabst, CFO, I would like to welcome you to the Q1 statement.

As you can see, we are presenting this event as a live stream. Thank you for your feedback that you gave us after last call, we have decided to have the Q&A session as an interact format. This means you will not have to use the chat, and you can ask your questions directly. Detailed instructions will be given by the operator at the end of this presentation.

It was just a few weeks ago when we held the year-end call. Therefore, our update on WashTec will be brief. Andreas Pabst will present the figures of the first quarter after my presentation. Finally, we will have the Q&A session.

WashTec had a really good start in 2023. The first quarter was successful, record high revenue, record high EBIT earnings per share up by 52%. And despite high investments, we had a positive free cash flow. This is clearly a development. We are very confident with as the Board -- as a Board. But the business Sky has some clouds too. The order intake in the direct business is slightly slower compared to the prior year. We're observing this closely and are taking actions. The real Sky, the weather outside in Q1 was very rainy even stormy. Wash figures were lower due to bad weather conditions in Europe and North America.

With a good weather in the last 2 weeks and additional customers we won, wash figures are coming back and also our more weather-related figures for service and chemistry exceed prior year's numbers. We will provide more details in a few minutes. Let me summarize our mission and business model to take everybody on board. Our mission is sustainable carwash. WashTec is the leading provider of innovative solutions for car wash worldwide. Our product range comprises all types of vehicle wash equipment as well as the associated peripheral devices, sustainable wash chemicals, green car care and water reclaim systems. As specialists in environment-friendly vehicle wash systems, we work continuously on innovations that contribute to sustainable 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. In the ecosystem of innovative and profitable car wash, our digital platform, myWashTec is the one platform that gives our customers easy access to all relevant insights and enables them to control carwash equipment and their business with highest efficiency. myWashTec provides one face to the customer and combines all functionalities to satisfy all needs around the car wash business for everyone, everywhere, anytime.

We have implemented an advanced wash count analytics in the cloud. We avail this data in real time now. Next step is already prepared as a product innovation on our digital platform. We have equipped our water treatment systems, the Aqua Pur Modular with sensors. Connectivity shows -- allows us to collect and process data, for example, the quantity of fresh and processed water, the parameters describing the state of the water and improved functions due to the data received. We then convert this functionality into smart services that can be booked by the user.

First customer groups have expressed high interest in this solution. We at WashTec are committed to integrate sustainability in the business model of our customers by providing sustainable carwash solutions. We will publish our second extensive sustainability report of the year 2022 by the end of Q2 2023. The report will feature WashTec's new mission statement in which we focus on our customer values. Second, we will showcase general information about the water recycling business. And third, we will publish our CO2 footprint of the sales and service country units.

Our sustainability actions and achievements are presented in the proven manner. As every year, Spring is the season for trade fairs. The Car Wash Show in the U.S. takes place from May 8 to 10. Our colleagues of Mark VII will present the innovations supported by WashTec colleagues, Sebastian Kutz and I will attend as well. From June 14 to 15, the German fair Tankstelle & Mittelstand takes place in Essen. This is the trade fair of midsized companies where we meet our direct customers and independent car wash operators. In case you are nearby, don't miss a visit.

I now hand over to Andreas Pabst, CFO of WashTec to present the Q1 results. Thank you.

[Andreas Pabst, executive]

Thank you, Ralf. Please now move to Page #9. On this side, you see our main KPIs for the first quarter. As Ralf already summarized, WashTec had a real good start in 2023. The first quarter was successful. But let us now look a little bit closer to the figures. Revenues are second year in a row north of EUR 100 million with EUR 109.2 million, we could top our last quarter year Q1 figure by 8.1%.

If we would take FX changes into consideration, it is worth to explain that we had contrary FX developments, whereas Norwegian krones have been supportive. We got some headwind by the U.S. dollar. But overall, growth without FX effects would have been a little bit higher than at 8.4%. Now let's look at the EBIT.

In Q1 2023, our EBIT comes in at EUR 5.5 million, which is clear above last year's number, an increase of 19.6%. EBIT margin is at 5.0%. How did we achieve this improvement. Here, higher revenues based on own price increases as well as higher delivery numbers helped us a lot, but we also did our homework on the production and the efficiency side. We acted proactively. In our supply chain, we defined so-called preferred machines. Preferred machines are machines, which can be sold to many different customers, which do not have highly individualized configuration. In that way, we can streamline our production. This is also supported by our focus on machines, which have a clearly defined installation time schedule.

Since January, we only produce when we know exactly when the equipment can be installed at customer sites, otherwise, we do not produce. Even if that means we need to take out some temporary workers or even close part of the plan for a day or so. This brings us back to our profitability path. Acting so, we are able to increase our production efficiency. And we see here first results. It is true that due to increasing purchasing prices, our gross profit margin is 25.5% is still below prior year, but we see a positive monthly development. It moves in the right direction. Furthermore, in the U.S., we started a program, we call it Road to Red Rocks, which will lead to better profitability there. This program includes a large variety of different matters on purchasing over installation and service to streamline our chemistry distribution.

China, we are currently discussed about the best way to penetrate the local market. Generally speaking, we are very cost sensitive on all layers of our company. And as stated at the annual press conference, we did really concentrate on increasing profitability. So you see we are doing a lot to stay on track for improvements in 2023. Another focus item we are working on is our free cash flow. As you probably know, from our annual report, we acquired land and buildings occupied by our U.S. subsidiary in January 2023. Mainly, therefore, we had a high cash outflow from investing activities, EUR 11.1 million in Q1 2023 compared to only EUR 1.2 million in Q1 2022. But despite this significant higher capital expenditures, we managed to generate positive free cash flow with EUR 1.9 million, whereas the comparable figure of 2022 was negative. We achieved this via improvement of our cash inflow from operating activities by EUR 13 million due, among other things, to the higher gross cash flow and the reduction in net operating working capital. Net operating working capital stands up to EUR 100.8 million compared to EUR 105.2 million end of December 2022. Our equity ratio end of Q1 2023 though is 31.2%, a solid #2. Now let's spend some time on our long-term development.

Next slide, please. On this slide, you see our 5 years development of revenue and EBIT for the first quarter. As you know, in general, first quarter is the weakest for WashTec. Nevertheless, compared to the first quarters since 2019, we can easily see our positive development. Coming from pre-COVID revenues of EUR 92.3 million in 2019, we are now at a volume which is 18% higher, a CAGR of 4.3%. But by far more impressive is the development of our EBIT number, coming from EUR 2.6 million in 2019, which is an EBIT margin of 2.8%, we more than doubled our EBIT and come in at EUR 5.5 million and EBIT margin of 5%. This is now our opinion a very respectful CAGR of 20.6%.

Now enough about long-term development, let's have a look at our regional revenue share. Next page, please. If you look at our regions, we also see this impressive revenue growth, whereas in our strongest region in Europe, we grew last year by 12.4%. We achieved in Q1 '23, good growth of plus 6.4%. Without headwind from Norwegian krones, the growth would have been 7.7%. In Europe, we could increase our revenues with equipment, with service and with chemicals. The figures in North America are even more impressive. After plus 58% in Q1 last year, we again grew significantly in Q1 2023 by an additional 17.5%. Also without FX tailwind, the growth rate is 13.7%. Due to this higher growth rate in North America, the region now stands for close to 20% of our group's revenues. This growth is attributable to the Equipment and Service Products segment, mainly due to higher equipment sales. Only in the APAC region, we fall by EUR 0.2 million behind last year as we had a weak start in Australia.

Moving on to the EBIT performance by region on Page #11. The first quarter '23, we managed to increase our EBIT in our biggest region, Europe, again, an increase by 34.1% to EUR 5.9 million, after an already high increase of 16% in Q1 2022. This is a result of the positive revenue performance and the strict cost management. In North America, our EBIT was despite a significant increase in revenue at the same level as prior year at minus EUR 0.3 million. To increase our profitability, we launched an efficiency program, our Road to Red Rocks. Work on this program has already begun, and we are certain that we will see here improvement over the year. Our APAC region generated in the first quarter a small loss of EUR 0.2 million.

Coming now to revenue by product category. Revenue from equipment and service reached EUR 91.1 million, up 8.6% year-on-year. This is mainly driven by own price increases done over the course of last year and at the beginning of this year. But also the number of machines sold is higher than in Q1 last year, especially in U.S., whereas in Europe, the service growth was higher. Revenue from chemicals was EUR 16.7 million, up 7.1% versus prior year. This came mainly from Europe, where we could expand our business to new customers. In North America, we saw a small decline in our chemical business due to weather conditions.

Next slide, our EBIT bridge shows some more details to explain the EBIT development compared to the prior year. As already explained in our last calls, we are facing significant material cost increases, which we conquer by own price increases and efficiency improvements. Despite good progress, we are in terms of gross profit margin with 25.5% still below comparable figure of Q1 2022, which is 26.8%. Nevertheless, our higher revenue helped us a lot that gross profit in absolute terms increased by EUR 0.7 million. Mainly higher outpoint freights led to higher selling costs, whereas our strict cost management led to lower R&D and especially lower administrative costs.

Altogether, we managed to decrease the functional cost as a ratio of revenues from 22.8% in Q1 2022 to 21.0% in Q1 2023. All this contributed to an increase of our EBIT by 19.6% to an overall amount of EUR 5.5 million. This clearly is a development where we, as WashTec Board, are confident with.

Next page, please. I already mentioned that we have bought land and buildings occupied by our U.S. subsidiary in January 2023. On this picture, you can see the front of the building. It is located in Arvada, a town close to Denver, Colorado. The whole area has more than 300,000 square feet approximately 29,000 square meters enough space for our own production for North American market and in a space -- enough place for further extension of our business. We have financed the purchase price of USD 10.3 million with U.S. Bank facilities so that we do not face any FX exposure out of this one. This led to a slight increase of our net debt position, which is EUR 28 million end of Q1 2023. The comparable figure end of 2022 was EUR 27.1 million.

Overall, I believe this is a clear statement to our U.S. colleagues that WashTec Board trust in further expectations in the North American market. Coming now to our guidance. In terms of revenue, EBIT and free cash flow, we had a very good first quarter, and we are on track, a good start in 2023. On the other hand, we are watching carefully our order intake. In the first quarter, it was down year-on-year following the demand in the market as a whole, currently somewhat slow. Accordingly, the order backlog at the end of March was slightly down on a year earlier. Therefore, overall, we look at optimistic but cautious in the future and keep our guidance with revenues at plus/minus 3% of prior year level. And due to our measures, we expect a significant increase in EBIT and a significant increase in free cash flow.

Finally, let me guide your eyes to our financial calendar, which is on Page 17 and on our event calendar, which is on Page 18. You see our next event is the Annual General Meeting, May 15, followed by the Spring Conference in Frankfurt one day later. We hope to see you there.

This is from my side. Now after a short break, we will be happy to answer all your questions you may have. I hand back to the operator.

[Operator]

We will now take our first question from Stefan Augustin from Warburg Research.

[Stefan Augustin, analyst]

And the first one is actually a little bit on the order development. You -- Mr. Pabst outlined that the order backlog is slightly down year-over-year. So is there -- can you add any more flavor to it is, let's say, framework contracts still sufficient to model that you would actually also be able to have the same amount of sales as last year in the other 9 months? And is this just precautionary? Or do you really see a bit a downward trend here in the business?

The second one question would be on Asia. And to understand a bit more how the decline of EUR 200,000 million in -- no, sorry, EUR 200,000 in revenue can cause this significant swing in profitability even though the chemical business seemed to be okay in Australia. So just to understand how this works. And then I have smaller housekeeping questions each and then on cash flow.

The first one is that the reduction of receivables in the first quarter, is that simply, let's say, we shipped the machines in December, then we had [indiscernible] receivables and it's simply money collection? Or is there another financial transaction like forfaiting EPS or whatever behind that big reduction of receivables.

And the -- I also recognize that we have a lower cash tax payment in the first quarter, will that level out during the rest of the year? Or can we assume really a lower cash tax payment this year?

[Andreas Pabst, executive]

I guess I take the questions.

[Ralf Koeppe, executive]

Yes.

[Andreas Pabst, executive]

Thank you for the questions Mr. Augustin. Maybe starting with what is the order backlog. [indiscernible] uncertainty in the current overall economic environment, we see that some of [indiscernible] the order like we did in the past, let's say, at the same speed, yes. If you look at our sales funnel, so this is where we collect all the possible orders in the future, the sales funnel is quite good, yes. But the signed orders are a little bit lower than we had last year. And that is something what we really need to watch and be very careful. Is there a reactor in the market? So currently, we do not see it, but we do not have so much order intake than what we would have expected for the first quarter.

Then you asked the question about what's in Asia? What is especially in Australia. So if you look at the overall APAC region, then we have really weak machine revenues in Australia, whereas China is quite good is on budget level. But do I have really sorrows about that? No, I don't because I really see that the machines in which we have not delivered in Australia in the first quarter, they are really sitting on the order backlog and there are contracts behind that. This is just a shift from one quarter to the next one is a little bit of accumulation of some customers. But I'm pretty sure that this will be resolved in the next quarter or next 2 quarters. But as the company is small, so you immediately see the result there.

Then you had the question about cash flow and reduction of the receivables. Yes, on the one hand side, we had a very good sales in the month of December. That means we had high accounts receivables end of the year, and we are now collecting the money. That is part of the story, but it's also part of the story that we are really increasing our processes in collecting accounts receivables. So we are focused on it, collecting the money. So that is 2 arguments for this reduction.

And I guess the last question was about taxes in the cash flow statement. There is one -- there's a shift of -- we paid some taxes in advance in Germany, and we will get it back with the other way around. It is a shift. It is nothing which is -- will last until the full year. Quite complicated.

[Stefan Augustin, analyst]

And it's good to hear that the -- so we can really model forward lower days outstanding for receivables.

[Andreas Pabst, executive]

I cannot tell you what you have to model, sorry. But for me, it makes somehow sense that we will bring down our accounts receivables, yes.

[Operator]

And it seems there are currently no further questions in the queue.

With this, I'd like to hand the call back over to Dr. Ralf Koeppe any additional or closing remarks over to you, sir.

[Ralf Koeppe, executive]

Yes. Thank you very much. Ladies and gentlemen, I hope you enjoyed the new format and the interactive discussion session now. We try to improve our processes for the call. Looking forward to see you at Monday in a week at the general meeting.

And furthermore, we are going off to the fairs. And Andreas will attend some investor meetings. So we're looking forward to meet you and have a good day. Thank you very much.

[Andreas Pabst, executive]

Thank you. Bye-bye.

[Ralf Koeppe, executive]

Bye-bye.