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Dear ladies and gentlemen, welcome to the H1 Report 2018 of SLM Solutions Group AG. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Uwe Bögershausen, who will lead you through this conference. Please go ahead, sir.
Yes. Thank you very much for participating on today's call on the first half figures. As always, I would like to start with a quick overview of what happened in the first 6 months. First of all, we increased our revenues by 2.3% to almost EUR 30 million. And if you take into consideration only the first -- the second quarter and compare it to the second quarter last year, then we have catched up with the slight revenue decline in the first quarter and grew by 12% in the second quarter alone. Total operating revenue increased by almost 18%. This means that we increased our inventory in order to prepare for the demand in the second half, the new order intake in value, and we adjust that for the frame contracts that we signed last year with the Chinese customers in order to make transparent how the actual business besides the frame contracts runs. It has increased by EUR 0.7 million to EUR 23 million. Without the adjudgments, yes -- that's 10 machine contract that we signed last year, it's down by 34%. But if you take into consideration this extraordinary effect of the frame contracts, it's slightly up. And if we take a look at the -- so adjusted order intake as of today -- or as of yesterday, then the value has increased by 16% to EUR 31 million. So we're on a good way. And we are increasing our baseline of -- our bottom line business besides satisfying the framework agreements. EBITDA improved by almost 16%. It's still negative, but nevertheless, we improved it. Lead value is also at a record level. The weighted amount is EUR 385 million. That's more than 20% up compared to last year. The frame agreements signed in 2017 are being fulfilled. Customers already called off machines with a value of EUR 12.5 million. That's in line with our plan, and that's 11% of the total value. That's exactly how the contract was -- how the contracts have been designed. So we see a high volatility in our share price, yes, that's correct. And yes, there are several -- probably several reasons for that. We don't comment too much on how share prices are developing, but what I can say is that from an operational perspective, we are in line with our plans. We will come back to that later on. We see -- we might see some postponements with the Chinese frame contracts, but only to a certain level. So from my perspective, this performance in our operational business will be reflected sooner or later in the share price. Shareholder structure has changed slightly. Well, they are not -- there are too many changes compared to Q1 2018. Hans Ihde sold off a bit of his stake, but that's already through. So it's more or less the same shareholder structure that we have seen in the first quarter already. As I already said, sales prospects are on a very positive level, and this is the pool we need in order to generate further growth. Compared to Q2 2017, we are up by 22%, EUR 385 million. Just for clarification, this is an already weighted value, so all the contracts -- all the leads that we are talking -- that we are discussing right now are considered with a weighted value only, weighted with the probability or likelihood of being turned into a purchase order. And this is how we generate this value. So that's a very positive development. And you can see that in the second quarter, we've increased the value significantly, so we are now on a good way. Financial highlights, as always. We have seen a strong second quarter, and this leads us to a robust first half. We have catched up -- we have seen some growth in the second quarter by 12%. This helps us to catch up with the slow first quarter. So on the full first half level, we have grown by 2.3%. But if you just consider the last 3 months, then we are on a very good way. 60% of all orders were multi-laser machines. So the trend is still intact. We are selling more production-oriented machines than single-laser prototyping or entry prototyping models or entry models. Current order intake, as I already said, is more than EUR 30 million or 48 machines compared to the 43 machines last year. So that's also a positive trend. Sales mix is more or less the same. So just to confirm that for your models, the SLM 280 remains our bread-and-butter business. It's a very standardized and reliable machine. And therefore, that has already gone through several certification processes, and therefore, it's still our bread-and-butter business. Other models are catching up. The SLM 800 will come in the second half 2018. After Sales business, it's also developing very well. We see a 71.5% increase in the first half. That's also a positive. As always and just as a reminder, this year, we will also be dependent on a strong fourth quarter and the strong second half. This hasn't changed. So the achievement of the overall guidance depends on the fourth quarter and the trade shows that take place in the second half. EBITDA improved. So compared to the minus 16%, we are now at minus 13%. That's already with -- and we're on the same -- more or less on the same level of revenues. So that's an improvement. The personnel cost ratio has come down slightly. The material cost ratio as well. So this also shows that from an operational perspective, we are developing in the right direction. Working capital is slowly, but it's going down, even if it's slowly. So we pre-produced machines for the second half, and we are well prepared for the second half. Strategic outlook hasn't changed. We are still working on positioning ourselves as a turn -- a system provider. We don't just want to sell machines. We want to incorporate software solutions, design solutions, the pre- and post-processing, training, consulting, all of that we are working on. And yes, this strategic positioning hasn't changed. So the management outlook changed slightly. We decided to announce a range of revenues that we expect for this year. Revenues will be between EUR 115 million and EUR 125 million, again, depending on Q4. We -- the reason for that decision is very simple. We've got these long-term frame agreements with Chinese customers. Again, all these contracts and the call-offs are developing as planned and according to plan. On the other hand, we already see some discussions with the Chinese customers asking for some postponements of a minor number of machines. And therefore, we decided to take that -- in order to take that into consideration, we decided to publish a range of EUR 10 million between EUR 115 million and EUR 125 million. So the initial guidance of EUR 125 million is still feasible but depends on the negotiations I just mentioned. We will strongly focus on the long-term frame contracts, as I said, right, at the beginning of this year because if we satisfy the customers with that long-term contracts, then we see many more business opportunities in China. So for us, it's a strategic topic to fulfill the needs of our customers and to satisfy our Chinese customers in order to benefit from the huge potential that we see in that market. And the best reference we can get is a good relationship with these customers from the long-term contracts. And that's what we are working on. Product mix will include more production-oriented machines, as I already said, and this is not just the SLM 500 but all multi-laser tools and the SLM 800. EBITDA margin is expected to be 11% to 13%, and the long-term vision of EUR 500 million for 2022 is confirmed. So just to summarize what we stand for, I think you all know that already, but based on our deep-rooted experience, we see a very good technological position in the market. We are in touch with many large customers, not just in China, but also in Western Europe and in the U.S. And with that expanding customer base, we are convinced that we can achieve further profitable growth in the future. And that's what we are working on, on a daily basis. So thank you very much for your attention. This was a very quick and broad overview of our development -- of the development in the first half. We are now open to answer your questions.
The first questions is from Gerhard Orgonas of Berenberg.
I have a question on the tools you've sold. It seems like you haven't really seen a pickup in the large tools in H1 at all. You've sold 5 500s and 0 800s. So can we expect a huge backlog for the second half of this year? And do you still plan to sell the 8 -- SLM 800s in 2018? Or is that part of the postponement?
Yes. Thank you for your question. First of all, the SLM 800 is only sold in 2018 to one of these Chinese framework contract -- contract customers. So all of them are going to that customer, and the shipments will take place in the second half, that's correct. One tool has been shipped in December 2017 already. This was the prototype. But the rest will be shipped in the second half. That's correct. In the 500s...
Is that still on track for [ H2? ]
Yes, that's on track. Yes, that's on track. So for the 500s, you are correct. The 280 is still our bread-and-butter business. As I said, the main reason is that this tool has been certified in many customer processes. So the demand for that is high, that's correct. We will see further demand for the 500 in the course of the second half, that's also correct, yes.
The next question is from Adrian Pehl of Commerzbank.
I actually have a couple of questions. First of all, let me start with a housekeeping one. I saw that you had quite high other operating income in the second quarter, which was pretty unusual. I was just asking myself, what could that be, any clarity on this one would be helpful. And you mentioned actually that you were happy with the call from the framework orders -- from the Chinese contracts so far but mentioned potential postponements being on the horizon. I was just wondering is that due to, let's say, postponement at the end customer project. Or are they telling you about the reason? And for which particular contract of the 3 Chinese orders you received, the larger ones, is that relevant or for basically for all of them? How should we think of it going forward? And then obviously, also on the guidance, I mean, I was, to be very honest, a little bit surprised to see since you obviously decided to lower your revenue outlook that you didn't -- I mean, in the fact that you actually did it. I would have expected it then to be a bit more, let's say, lower, at the lower end of the range that you gave, obviously, to have some kind of certainty about it because I feel there could still be a risk that we move into the fair, move into Q4, and then it always gets a little bit tough if you can finally ship the tools. So any clarity, please, on that? Why are you still, I would call it, optimistic to achieve the roughly EUR 90 million still that you need for the second half? So these are my first three, maybe I have some follow-ups then.
Okay. First of all, thanks for your questions. Your question regarding other operating income is caused by exchange rate effects. And you might have seen that in 2017, we have seen a negative exchange rate effect, and this year turns into a positive effect again. It's minor, but nevertheless, the main reason for the other operating income is the exchange rate. The call-offs -- postponements, yes, you are right. It's -- the main reason is our end customer projects. Our customers are looking for utilization of the machines and are looking for build parts. And we are in the close discussion with them, how much capacity they need. And again, there haven't been cancellations or something like that, but we are talking about postponements of the existing shipments. Some of them -- we foresee that some shipments will be postponed to a later time. That's all what happened. There are no cancellations. I cannot name customers, but you can imagine that besides the SLM 800 customer, these are all remaining 3 customers we are talking to. You are afraid that guidance is still too high or too risky. First of all, our main aim is to give reliable and accurate information on our projections, and this is what we still foresee, so we decided not to put any buffer or cushion into it. So that's why we decided to stick to the EUR 125 million at the high end of the range and the EUR 115 million at the low end of the range. Does that answer your question?
Yes. Just a follow-up on what you said on exchange rate, just to understand it. So obviously, that is referring to your U.S. dollar position and how -- does it come that you obviously [ just solve ] the position in the second quarter? Or what's the background of that booking in other operating income?
That's a very usual booking. Exchange -- the positive exchange rate effect is always other operating income whereas a negative effect is other operating expenses.
Well, that's clear so far, Uwe. Absolutely. But I was just wondering, I mean, this was EUR 1.6 million in the second quarter. I wasn't aware that you have obviously that FX exposure. So that is U.S. dollar basically or what is it?
Yes, it's U.S. dollar. That's correct. Sorry for the misunderstanding. Yes, that's predominantly U.S. dollars. And that's a translation effect. So the translation of the accounts of our U.S. subsidiary into the German accounts, that's the reason for that exchange rate effect.
Okay. Yes, I'm just a little wondering why there has not been a similar effect in Q1 due to the relative exchange rate, but we can follow up on this probably later -- after the call. Just to come back on what you said on China, so is it nevertheless that we should think of, let's say, there -- whatever kind of energy or aerospace projects, they are delayed? Or is there any kind of issue we should think of it in terms of tool productivity? Can you rule this out?
No. It's a postponement of the build parts of the -- build part contracts behind the machine. So there is no machine issue.
Okay. And 2 last things from my side. When I recall correctly, there were some revenues actually that have been postponed from Q4 last year with, I think, one single customer. And I just was wondering have they been recognized in the second quarter? Or is that yet to come? And last question from my side is, you were actually referring already to this topic. I'm picking it up again from the Q1 conference call in terms of orders from Western Europe, and you added obviously North America with some deals here. You said that the talks are pretty advanced, revenues to come into 2019. But would you more or less confirm actually what you said in Q1 that there could be potential order intake around whatever Q3, I think, was a targeted time frame, is that still valid? And on the other hand, is there anything that until then added on top in terms of additional negotiations that you were able to make with your client base?
No. The frame contract that I mentioned in the Q1 call, these negotiations are still ongoing. And I ask for your understanding, I cannot disclose any details on that, any details on names or industries or whatever. The -- we have already seen 2 machines shipment that will result in a frame contract. This is the first basis, the first machines this customer has bought in order to test the machine. It will take some more time to finalize these framework negotiations, but it's still valid. We -- I'm still convinced that we will see frame contracts, not on -- of the same size as the Chinese contracts. That's what I said in Q1 as well, not of the same size but with -- if -- hopefully, I can disclose them, but with more familiar names, let's put it that way. Regarding Q4 shipments, yes, some shipments have been done in Q1 and Q2, in the first half 2018. And some of them are still under negotiation, that's true. We -- sometimes, we need some more time to convince the customers, they need time for financing for making the -- for getting the investment decisions done. So it's working slower than expected, that's true. But we are still very positive regarding -- as you have seen it, it's very positive that our sales funnel is constantly increasing.
So -- well, just one final follow-up on this one. That means that I was expecting this to be, let's say, kind of a fixed contract with everything negotiated but probably just a timing issue or whatever. So it seems that there are still more elements to that, which you need to negotiate, is that the case? It was not a fixed contract you had with the customer?
No. This was not a frame contract. This was with regards to normal purchase orders. And you know that we have a very broad customer portfolio. We've got large enterprises, but we also have small- to medium-size enterprises. And with that kind of enterprises, negotiations usually take longer. Same with universities, a discussion with a university can take much longer than initially expected, especially if they have to apply for government grants or something like that. This might take longer than initially expected, and therefore, these orders can be -- can take longer than expected.
The next question is from Uwe Schupp of Deutsche Bank.
Sorry, I was on mute. Just one question, maybe with a bit more detail, if possible, on the potential postponements you may be seeing from China. So did we hear you correctly that the SLM 800 order seems to be on track, but all of 3 others could be -- there could be a delay for -- is it only really one reason basically for all the 3 customers across the industries? The build parts are not ready, I guess. Any granularity really on these 4 -- 3 or 4 orders is -- again, obviously, I don't want to ask for customer names. I guess one customer's name is actually Google-able. But we are not asking for any name you had really, but more any -- and then also maybe related to that, is there a potential to kind of hold the customer liable? Meaning, is there -- in other industries like in the solar industry, for example, we've seen examples where kind of should the ultimate order not come that you kind of keep the deposit. But I guess, we are not at that stage at -- right now, is that correct?
No, definitely not. And I'm very happy that we are not at that stage. You know that I've gone through that development as well a couple of years ago. And the reasons for the postponements, well, there are always individual reasons, but the quality -- or the -- yes, the quality of the reasons is always the same. They want to use machines for producing parts. And if the discussions with the final customer for the parts is taking longer than expected, then a shipment might be postponed. We could, just to make that clear as well, we could take the customer liable for that, and we could force them to take the machine. But I'm deeply convinced that this is not customer satisfaction. And that if we do so, then we will end up with doing no business in China. So this -- you always have to compromise. So from a legal perspective, we would be able to force the customer to take the machines, but that's not the way we should do business. Does that answer your question?
It does. It does, certainly. And then maybe one follow-up on the -- partly related to the frame contracts. If you look at Q3 and obviously, we have -- almost halfway through the third quarter, what do you see in terms of these frame contracts and maybe in overall business, so to speak? Is -- will it be extremely reliant on Q4? Or will it be -- would you expect a fair amount of growth already in Q3 to happen?
Yes. Well, we have just 1 month through of the third quarter, and that's July. July is always one of the slowest months we see. If we consider that, everything is in plan. And -- but we are working hard on getting the growth prospective satisfied in Q3. So we are well on track. All the discussions with the frame contract customers are going in the right direction. So from that perspective, I don't have any doubts. Otherwise, I would have -- I wouldn't have published the guidance.
The next question is from Philip Saliba of HSBC.
Three questions from my side. First, you mentioned that the Chinese customers are committed to EUR 30 million of call-offs for this year. What amount of that is, let's say, at risk to be postponed? Can you give an idea on that? Then secondly, in terms of the general environment in China, how far are you in terms of discussions with regards to new orders from China? And then thirdly, if we subtracted the roughly, let's say, EUR 42 million, EUR 43 million that were expected for this year from the framework agreements, we are roughly at, yes, at a flat top line compared to the last year or even slightly down. Basically, where does this sluggishness come from? Is it related to both regions, Europe as well as North America? Or can you elaborate on this a bit?
Yes, thanks for your questions. First of all, we -- the range of EUR 10 million in our revenue guidance should reflect 2 factors. Some EUR 5 million are with regards to the Chinese frame contracts, and the other EUR 5 million is just taking into consideration -- it's just a precaution so coming -- that might come from other purchase orders. So your question was, what is the risk for China. It's EUR 5 million and another EUR 5 million we took into consideration just as a precaution. New customers in China, yes, we've got -- we got new customers in China in 2018 already but for smaller purchase orders, not for huge frame contracts. And I would like to remind of my comments at the end of 2017, beginning of 2018, in 2018, we want to concentrate on fulfilling, on getting these frame contracts done in China. Because, again, if we satisfy the customers in China, these 4 large customers, then we are in a very good position in China. And this is what we are focusing on in China in 2018. We are not that much looking for the next huge frame contract. We first want to deliver on our commitments for these 4 contracts. If we've done so, then we are in a very good -- we've got a very good reputation and a very good position in China. That's what I said at the trade show in 2017, and that's what I commented in Q1 2018 as well. You are talking -- you call it a sluggishness, well, it's again, overall, we are on track with our business development. And I don't see any major difficulty or any sluggishness. It's -- we are overall on track. Does that answer your question?
Yes.
The next question is from Thomas Effler of ODDO BHF.
First question is regarding kind of your sales and marketing department. If I read it right in the reports, you mentioned that you will review this department and -- regarding potential restructuring. So what is -- can you give us more flavor what you are planning in this department? What are the reasons to do that? Second, regarding your software and metal division, how is the business going there? Are you happy with it? What are the new products in the metal division and software division? And thirdly, regarding personnel, I think you have now 405 people. Do you plan further hirings? Or can we assume probably even lower personnel for the second half?
Mr. Effler, first of all, thank you very much for your question. First of all, I was very surprised about the word restructuring, and I just looked it up in the report. You are referring to the risk report?
You are right, yes.
Yes. I don't know how to express myself. The risk report, it has a certain...
Audience.
Yes. It has a certain audience and a certain meaning. This is something that we are -- well, I take that seriously, the risk report, you can be assured. But please don't overweight. The risk you are mentioning is that we might miss opportunities -- the word might is very important. And of course, if we miss opportunities and if the business is going down, then, of course, we will take care of our cost structure. But this is the risk report. It's very hypothetical and discussed with auditors, not with businessmen.
Okay. So there's no -- just to clarify because you're saying...
No, there's no restructuring going on. Sorry for that wording. But a risk -- again, a risk report is a risk report, and it's sometimes overstating. And as a businessman, I see that differently. It's an obligation, and I can assure you it's always a tough discussion with the auditors, and that's what it is. Your other question was with regards to -- sorry, I...
No problem. Well, I believe -- regarding the personnel with the 405 people, do you plan further hirings? And in what areas? And...
No. There are no major hirings planned for the second half.
Good. And the last one was regarding the software division and the metal division, probably an update on these ones, where the business is going for new products?
Yes. Software is doing very well. We are further developing the additive designer product. We are in a beta testing phase with certain customers. Adoption is very, very good. Adoption is very positive. And therefore, we -- everything is developing according to plan. Market introduction will be at the formnext this year. That's still valid, and there haven't been any change. Regarding powder, we announced at the last trade show that we entered cooperation with some partners for tailoring alloys. That's also a very good development. Everything is according to plan. What we won't do -- what we probably won't do -- and this was part of our initial plan, maybe we will leapfrog that. Initially, we planned to set up production capacity for standard aluminum material. Because in 2016, we've seen a shortage of aluminum powder of the quality that is actually needed by the industry. And therefore, we decided at that time to start with setting up an atomizer for aluminum, exclusively for aluminum powder. This situation has changed. The number of suppliers for aluminum -- for standardized aluminum powder has increased significantly. And we will probably come up with a cooperation agreement with one of these large manufacturers that allows us to ship enough standard material. So we will probably leapfrog that step and not enter production of standard powder. We would directly move to the tailored alloys.
Then the final one regarding your new headquarters. Are there any payments in the third quarter expected in the balance sheet? Or is it already all done in the second quarter?
No. That's all done. Only for gardening, we might need some -- we might see some minor payments. As you know, the weather is a little bit difficult and quite hot in Germany right now. And therefore, we didn't start gardening yet. But to be honest, that's a very minor topic. The government grants will come in, in the third quarter, probably. So this is a cash inflow.
How much was it again? [ Can you quantify it? ]
There's a remaining EUR 3 million that [ ended it ] -- I don't -- don't nail me down on the third quarter. It's -- and we have to apply for that and fill some forms with the government. And then -- but it will probably come in, in the third quarter.
There are currently no further questions. [Operator Instructions] We haven't received any further questions. I hand back to the speaker.
Yes. Thank you for your attention and the time and the interest in our company. As always, if there are any further questions, please feel free to contact us, me or Dennis, and we can talk whenever you want. Thanks, again, for the attention, and talk to you soon. Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.