© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
May I now hand over to Lutz Ackermann who will lead you through this conference. Please go ahead, sir.
Yes. Good afternoon, ladies and gentlemen. This is Lutz Ackermann speaking on behalf of Fuchs Petrolub. I wish you a very warm welcome to today's conference call on the Q3 numbers. As always, all relevant documents have been uploaded on the IR section of our home page this morning. On the call with me today is Dagmar Steinert, CFO of Fuchs Petrolub. Dagmar will run you through the presentation, which is then followed by a Q&A session. Having said that, I would like to hand over to Dagmar. Dagmar, please go ahead.
Thank you, Luke. Good morning, ladies and gentlemen. And yes, I would like to start with Chart #2, our highlights for the first 9 months 2021. And just to state it like in a difficult market environment, we have performed in-line with our expectations in the last quarter. And as you can see, our sales are up 22% year-on-year, and we reported EUR 2.1 billion. Our earnings, our EBIT increased 37% year-on-year. And our outlook is confirmed.Looking a bit deeper into the figures, we see looking at the first 9 months that our sales growth is mainly volume-driven. In the third quarter, we've seen more positive effects from price increases and less but moderate volumes increases. So to give you a more or detailed impression, if we compare third quarter '21 with the third quarter '20, with roughly 1/3 volume growth and 2/3 is pricing.Of course, we faced as well shortages, supply shortages in the automotive industry what affects our sales in all regions. But as I said before, our performance is in-line with our expectations. With that, I would like to turn to Chart #3, our quarterly sales development. And as you can see, our third quarter this year is on the level of the second quarter of this year, but we have slightly decrease in volume.On the next chart, the quarterly EBIT development, you'll see like quarter-on-quarter, we are slightly below previous year. But in 2020, we had a very weak first half. Then in the third quarter, economy picked up and we had our record quarter of-- the fourth quarter of 2020 and the third quarter this year is as well more or less on the level of the second quarter of this year.If we turn now on to Chart #5, our group sales. We have 22% organic growth. We have a bit external growth due to our acquisitions in 2020 and the same amount we lose on the currency side. So -- but as I said before, 2020 is heavily impacted by COVID-19. And therefore, if you look at 2019, we increased our sales in '21 compared with 2019, the first 9 months by 9%. And all regions increased this year, previous year-end 2019 as well.On the next Chart #6, our net operating working capital. That's a weaker point of our performance within the 9 months. But of course, our net operating working capital increased significantly from the second quarter to the third quarter. In an absolute amount, we report EUR 681 million and that is dominated by an increase in inventory. And as you all know, because it's not only us, it's more or less everybody who is facing this difficult market environment, if you think about the shortage of semiconductors and chips in the automotive industry, if you think about the disruptions in the supply chain, it's a normal development that you have higher inventory. And of course, a portion of the higher absolute number of net operating working capital is the increased volume.And on the other hand, we have higher inventories due to the calculation -- total cancellation of orders of customers as they face disruptions in their supply chain. And of course, disruptions in our supply chain. To give you just an example, if you like need for a product, different raw materials and one is still missing, you are not able to produce and you still have it in your stock. But I would like to point out that we are not facing any structural problem. It's just the result of the actual environment.On the next chart #7, our earnings summary for the first 9 months about the sales increase, 22% we already talked. If you have a look at our cost of sales, the cost of sales increased under proportion increase over proportionately that was 24%. So our gross profit increased just by 20%. There you still see the impact of increased raw material prices. And looking at the gross profit margin, one result of that, of course, is that our gross profit margin is below previous year. And if you look at the gross profit margin Q3 compared with Q2 this year reduction as well.Our other function costs increased by 11%. And there, we preliminary higher selling costs and of course, one portion of these selling costs increased freight costs. Our equity earnings are on the previous year's level. And therefore, our EBIT is up 37% year-on-year, and our EBIT margin amounts to 13.1% in the running year. Compared with the pre-crisis year 2019, our EBIT is up EUR 33 million or 13%.Looking at our CapEx with EUR 45 million in '21. That is significantly lower than the previous year. But as you know, we finished our big CapEx program by the end of 2020. About our net operating working capital, I already talked and our free cash flow before acquisition amounts to EUR 44 million for the first 9 months of this year.Having now a look at the regions starting with Europe, Middle East and Africa. There, we see, if I compare the performance with 2019, we can see that the sales are up by 6% compared to 2019. And all countries more or less reported compared with the previous year, a significant double-digit growth rate. The growth is -- yes, it's an organic growth. There's no impact of any acquisition and very positive with the performance in South Africa and Russia as well as in Southern Europe.Coming to Asia Pacific. That's Chart #9. There, we see that sales are up 25% compared with previous year as well as 19% compared with the pre-crisis levels in 2019. This increase is organic as well. We had a little bit currency effects, but no external growth as well. Of course, China is the biggest earnings contributor in this region followed by India and Australia. And all companies had a good development.Coming to North and South America, there we see as well higher sales by 22% compared with 2019, we have a number which is 8% above 2019. In this region, we see external growth of EUR 11 million that's due to our acquisitions of NYE and ZIMMERK in 2020. And we have negative currency effects from North and South America in total with minus 10%. Our earnings are significant higher compared to the previous year and also above 2019.With that, I would like to come to Chart #11, where you'll see that we face a substantial cost base inflation in the running year. And on this chart, we have several graphs or lines, and we put the development of the base oil for Q1, Q2 and Q3. Oil increased Q2, the highest increase. We see that these base oil prices remain on a high level. But what we added the first time is a graph for trade and for packaging costs. And these 2 costs are significantly higher compared to previous year. And that, of course, is a burden to our margins as well.On the next chart #12, just as a reminder, for confirmed outlook unchanged, we are confident that we will deliver. And of course, it's a difficult market environment, but we confirm our outlook with sales at the upper end of the range of EUR 2.7 billion to EUR 2.8 billion and EBIT between EUR 350 million and EUR 360 million as well as our Fuchs value added with EUR 200 million and our free cash flow before acquisitions around EUR 110 million.And therefore, on the Chart #13, you find the bridge for our expectations regarding the free cash flow. As we just had a number of EUR 44 million free cash flow before acquisitions after 9 months. And our increase of net operating working capital after 9 months is higher than our expectations for the year-end. And of course, we have these burden of these other changes where we have the-- like reversal of taxes. So in 2020, we had a positive impact of less tax payment. And in '21, we had to pay this. And we are still confident to deliver our free cash flow before acquisitions even in this environment of increased input costs and that I just want to confirm.On the last chart is just a teaser that we will have our Capital Markets Day in 2022 on June 28, and registration will be open soon. And with that short presentation, I would like now to turn into Q&A because I'm sure you have quite a couple of questions.
We will now begin our question-and-answer session. [Operator Instructions] We have the first question is from Markus Mayer, Baader Bank.
The first one is on the financial capital development. Can you shed some light what kind of effect is coming from supply chain issues and that you basically cannot get rid of your material, have problems for finalizing products and what is coming from the higher price effect? That would be very helpful. And also in this regard on the cash flow, this other effect you just showed in this cash flow bridge, is it fair to assume that this is a magnitude of around EUR 30 million for this year? And then the last question, so actually 3 questions on the guidance. So when I take the upper-end of your guidance range on sales, then it implies EUR 670 million revenues for the fourth quarter, which is a 6% sequential decline despite higher price effects, which I guess will is a certain delay in stronger kick in, in the fourth quarter than in the third quarter.So my question is here, do you expect the destocking in the fourth quarter or why should you see such a sequentially lower volume growth for the fourth quarter? And the same true also for the EBIT, which implies EUR 71 million to EUR 81 million. A, the question, do you also here expect more the upper-end as it is the case of sales? And what could be then the main triggers for only being within the range and not an upper-end or even above because here as well, I think the price increases you recently had and also what I understood will again raise in the fourth quarter and even in the first quarter of next year, they should also buffer at least a part of the higher raw material costs. That would be helpful.
Well, I would like to start with the expectations or development of the fourth quarter. As we have seen in the third quarter, a negative volume growth. And the fourth quarter is usually our weakest quarter within the year. There are less working days and of course, quite some customers closed their plants for holidays during that time. And the range for the full year, the upper end EUR 2.8 billion, of course, even EUR 2.83 million would be EUR 2.8 billion. So it's within our range, yes, what we expect for the fourth quarter. Regarding our profitability, yes, of course, we expect a lower profitability in the fourth quarter compared with the third quarter. But that, of course, goes somehow in line with negative volume growth. And of course, we face massive increasing freight costs, packaging costs and of course, there is the -- there are the difficulties regarding supply chain or disruptions within the supply chain.And I mean, if you listen to the OEMs, what they announced that the shortage of semiconductor and chips and so on, results in less smaller numbers of cars produced. So that's all included in our expectations for the fourth quarter. Regarding our net working capital development and other effects within the cash flow statement, as I mentioned, the major increase of the net working capital is an increase in inventories. And there we have both. Of course, we have an increase in raw materials, where I give you, for instance, the example where we are not able to produce if still one raw material is missing. On the other hand, we put more safety stock in our inventory of raw materials because there are always disruptions in the supply. And so once you are able to get some which you need for production, you might even take more on your stock because you don't know when you get the next delivery.On our finished products, we have an increase as well. Of course, a portion of that is just the pricing, but we have more volume on stock as well. And that is due to the cancellation of orders, which if they come in very, very short time. But we are optimistic that we will see a reduction until year-end. And that, combined with the other effects where we have the burden of tax payment, which is -- that is slightly compensated by, yes, positive other effects due to the higher volume, of course, we have more we have more provisions, for instance, and that is positive on the free cash flow. So overall, it's a mixture of different things. And if you look at our CapEx number for instance, where we said we want to spend EUR 80 million and that is in-line more or less with our depreciation. But we might even get some million out of that out as well just due to a time shift. So overall, I believe we will get into the direction of the number of EUR 110 million free cash flow before acquisitions.
But if I can ask an add-on question this. So you said safety stock. And can you quantify this effect of safety stock? And also what you said that for unfinished products, then materials are missing and therefore, they're longer on your balance sheet, on the cash flow than normal, this kind of magnitude is this can you quantify it?
No, I can't quantify it because the situation changes day-by-day or week-by-week and therefore, sorry about that Markus.
The next question is by Martin Roediger from Kepler Cheuvreux.
In the past, you always said that you have a time lag in passing on raw material costs to the customers of around 1 quarter to 2 quarters. But when I look at your quite good figures in Q2 and in Q3, I have the impression that you have more or less fully passed on higher cost to your customer. So what has changed compared to 3 years, 4 years ago when Fuchs was squeezed on rising raw material costs? And the second question is on Q4, the raw material evolution, what is your expectation on your overall raw material basket, so base oils and also additives on a sequential basis and a year-over-year basis?
Well, our time lag to pass on raw material price increases, which is, in general, 1 quarter to 2 quarters that didn't change. And even if you look at our numbers, as we see in the third quarter, a higher number of pricing, if you look at our margin, we still are -- we still have a time lag, and we are still working on that. And of course, for the full-year 2021, we will not recover all the price increases we have seen compared with previous years. Of course, it is much easier to pass on price increases to the customers if you have this massive inflation. If you are talking about 1% or 2% or 3%, of course, it's much more difficult to pass it through. And therefore, Martin, nothing really changed. But of course, our people already try their best. And as we've seen already in the last quarter 2020 price increases, they went out to the customers in December, beginning of the year and starts all the negotiations. Your second question was -- could you just shortly repeat it, sorry?
Raw material evolution for Q4, quarter-on-quarter and year-over-year.
Yes. Well, prices remain on a high level. And of course, well, I would say regarding the prices, there won't be a release, maybe one or the other regarding certain raw materials, but not on an average, if I look at our raw material basket in total. And yes, looking at the development of packaging costs and freight that makes it even more expensive. Therefore, I would say it's on that level with day one.
The next question is by Matthew Yates, Bank of America.
The first one, I'm wondering if you can talk a little bit about the press release from the other day about Mr. Bok leaving the Supervisory Board. If you can share any insight into what has triggered that decision and how the company is thinking about succession. Secondly, I think the issues in auto-OEM have been pretty well flagged. I wondered if you could talk a little bit more about how the industrial side of your business was trending through the quarter and how it started in Q4.
Well, about the press release that Cook is going to leave our Supervisory Board by the next General Annual Meeting in '22, that is something that was -- yes, it was longer term, the intention and it just became concrete on Monday. And therefore, we published that and now, we have like 6 months' time to see who is going to fill in then the position and the nomination committee will work on that.
Dagmar, sorry, just to follow up on that. I mean, the tenure since joining or taking that role as Chairman wasn't particularly long by German standards. But are you saying that was always the intention that there would be a transition next year?
Well, that's -- I can't tell you more. It's all said about that.
And on the industrial side of the business?
Well, the industrial side of the business, of course, looking at the automotive industry, the dynamic is getting less. And -- but that's I think that's more or less for-- account for most of the or all of the OEMs and first-tier supplier. And looking at the industrial business, of course, it's a mixed picture as well as there's not only a shortage for automotive industry, now there is a shortage of magnesium, their aluminum, steel, it's supply chains are very difficult at the moment. And therefore, a lot of industries struggle and got there like short-term disruptions in producing and delivering. Your welcome.
The next question is by Sebastian Bray, Berenberg Bank.
So my first one would be on the outflow for acquisitions in Q3. It looks like it was about EUR 30 million. The only acquisition I'm aware of was GLEITMO deal, which had about EUR 6 million of sales. Was this just a bit of an expensive deal relative to what's been done in the past? Or am I missing something here? That's the first question. The second one is effectively at this stage, it sounds as if space oil prices are leveling off. Are the price increases that Fuchs done dusted? I believe there was a full round in the U.S. that is being implemented, but are we done aside from that? And on CapEx, if we have, let's say, EUR 75 million this year or EUR 70 million versus the guided EUR 80 million, is there a catch-up effect for the next year, whereby we're going to have EUR 90 million or EUR 95 million?
The first question, you're -- yes, you are not missing anything, but I didn't mention it. Of course, our acquisition of GLEITMO wasn't that expensive. We just settled the payment for the NYE out earlier. You might be aware that we negotiated like a 2 years earnout period for our acquisition NYE. So we had to pay for 2020, what we did in the first half of this year and for '21. And we decided to settle that earlier. And what you see in our cash flow statement is with EUR 25 million, the settlement of the earn out of NYE which was already in our balance sheet by the end of the year 2020. And your question regarding base oil prices and if we are done with our price increases while we managed to pass through, I would say, quite a big portion of raw material price increases.But of course, looking at our business with price variation clauses there we are not -- we haven't covered everything by now. And of course, looking at the inflation there, we have to still cover more by next year. And regarding the CapEx number, I expect more than EUR 70 million CapEx for this year. It should be EUR 80 million, but could be as well EUR 75 million or EUR 76 million. It's always very difficult to exactly know what the exact number is but if we have less than EUR 80 million this year, we will have this amount in the next year above EUR 80 million. So if you look at both years '21 and '22, then it should be in total EUR 160 million.
The next question is Michael Schaefer from ODDO BHF.
The first one is, since you mentioned it or indicated and highlighted this particularly on Slide 11, I wonder whether you can shed some more light on the total freight cost you're bearing every single year and the order of magnitude at least? Second one is the particular weakness we have seen in the European market in the third quarter also margin-wise, also compared to, let's say, the levels you reported in 2019 for this reason. Is there any particular reason for this major weakness in terms of margin? And the third one is on the other slide. So looking into the EBIT so you reported something like EUR 5 million. which is unusually high number compared to, let's say, the quarters we have seen beforehand, so any particular effect any one-offs included there?
Well, starting with your first question regarding our freight costs, that's like roughly 4% of our sales. And it increased within the first 9 months by over 20%. In our region, EMEA, of course, it's the -- it is always just like a snapshot, if you compare like 3 months a quarter with another quarter because there are always different product mix development. But of course, our region, EMEA is in the third quarter this year is more impacted by reduced volume of sales within the automotive industry. And regarding the EUR 5 million other, there is a really not really a one of India. It is…
Maybe I can take on for the last question and then Dagmar can take. So I think within the other line, I think it's normally that license fees are being paid from the regions to the holding. I think this is what is included there. Normally, you would have negative consolidation effects, but this is why it varies throughout the quarters a little bit. And I think this time, yes, it has been this way around. But normally, you should see smaller numbers with regard to that.
Yes. And this EUR 1 million out of the earn-out of EUR 9 million because we had in our balance sheet, EUR 26 million last year. And we just had to pay EUR 25 million. And it's due to our gross margin, it's a bit less compared with previous quarter. The reversal of inter-company the earnings due to the inter-company sales.
The next question is by Lars Vom-Cleff, Deutsche Bank.
Do you have any explanation why your business with automotive customers in China was so strong last quarter? I'm only asking because it contradicts with what my auto research colleagues tell me and what they have seen so far from their coverage universe.
Yes. Thank you for your question regarding China and our performance in China. Our portion of automotive aftermarket is bigger in China than compared with the other regions. And therefore, we've seen as well a slowdown overall. But as you said, not as much within the other regions.
The next question is by Isha Sharma with Stifel Europe Bank.
Just a follow-up on the guidance, if I may. Do you expect the current situation to deteriorate quarter-over-quarter in Q4? Or is it purely the seasonality effect that you have baked into the guidance? And in that regard, if you could help us a little bit into the development that you have seen in your order book so far in October. Is it in line or better or worse than your expectations? That would be the first one. The second one is on Americas. Looking at the development, do these numbers include some market share gains, given the fire at your competitor that we had talked about in previous quarters? Or is that effect not visible because of the whole supply chain disruption situation?
Well, I would like to start with your first question regarding our guidance and seasonality. It's our expectation for the fourth quarter are, of course, impacted by the seasonality and as well by the difficult supply chain and the less or downturn dynamic of the overall market. If you look at our order books, we have always there a very short visibility. So we are talking here not about months or quarters. It's a question of weeks and what we face, what everybody else, I would say, faces in this difficult environment is that you get with a very short notice, cancellations from your customers. On the other hand, we have the situation in one or the other case that we are not able to deliver because we face missing raw materials. Therefore, that's all reflected in our expectations for the fourth quarter and for the full-year guidance. Regarding America, we don't see really visible gains where we take market share from -- resulting from the fire of competitor but what we see is as we had a weaker performance in 2020 in America that they are now improving and of course, very positive is the contribution of NYE.
Just one more. So do you expect going forward some market share gains from the phenomenon? Or is it something that you are cautious on when it comes to guidance?
Well, I don't expect-- a little bit, but not a big gain.
The next question is by Eleanor Seddon with UBS.
I've got a couple of questions also. First one is, are you happy with the current level of safety stock? Would there be any further additions to that, that you want to build up through Q4 at all? Is it also something you'd be looking to maintain through the winter, assuming supply chain issues remain in a similar condition? Then the next question would just be around those cancellations of orders that you've seen. Do you think those are delays to demand so that would catch back up next year when your customers are able to produce their products? Or is that effectively a loss period of demand and next year would revert back to normal? And then finally, on a slightly different topic, could you remind me on your reliance on different forms of energy around the globe? So I understand all your electricity in Europe is renewable, but please, could you comment on the rest of the world and on what time scale you think that would all be moving towards renewables?
Eleanor, starting with the first one, am I happy about our safety stock? I'm not happy about our stock overall about the amount. But of course, we need a higher safety stock in this time and -- but we won't build up even more in the fourth quarter. And we will, of course, work on reducing our stock regarding finished products. The question about order cancellation. And if we see that this is a delay in demand that will catch up later. I personally believe that a portion of that will be lost and that not everything is being catch up. Your question about our use of energy and what's renewable in Europe, we are using 100% green energy, and we are working on it in our other regions.We -- on our new buildings and everywhere and even where possible on old buildings, we put on like solar panels, for instance, and we have a lot of activities and projects to improve our own CO2 footprint. And as we are CO2 neutral within our own activities date-to-date in the last year already, we set the target for 2025 to be zero to neutral, including our whole supply chain. And yes, we had to buy some certificates but we carefully look what kind of certificates that are and we gave the commitment that we want to reduce the portion of the fiat year-by-year. So we are coming there from like 2 sites. And I would say, to be CO2-neutral created to-date in 2025 is more than a target. It's more a commitment.
[Operator Instructions] Our next question is by Markus Mayer, Baader Bank.
Yes, I have a question on the after-market exposure in the automotive part. Am I right that, A, the aftermarket business is bigger in volume terms than the OEM business? And B, other competitors in Europe, in particular, in Germany, we're extremely bullish on the aftermarket business and also what we hear from other parts of the industry, the after-market business as there are not that much new cars in the market looks extremely strong? Is this also something you already experienced? You said this already for China, but this asset case for other regions as well, that would be helpful.
Well, Markus, our after-market business is less than our like OEM and first-tier business. And we are stronger in the automotive after-market in China. And there, we had still a good performance. But I wouldn't say that our aftermarket business is strongly increasing. No.
For the moment, there are no further questions, so I hand it back to Lutz.
Yes. Operator, thank you very much. So we have come to the end of today's conference call. We would like to thank you for your participation. And I would again like to highlight that we have announced our Capital Markets Day for the next year, which takes place on 28th of June and we are happy to welcome you here in Mahan then. And if there are any further questions today or the next day, please don't hesitate to contact us. Otherwise, we would like to wish you a very nice evening, and have a nice weekend and speak soon. Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call being concluded. You may disconnect.