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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, so it's bit longer. But now everything should work fine. Today, we'll be presenting to you our Q1 figures as just released this morning. In the next 15 to 20 minutes, we will present the most important events of the first 3 months of 2023. Following this, we will jump right into a Q&A session.
Please note that the entire call, including the Q&A session will be recorded and made available publicly on our corporate website in the course of the day.
And now I'm handing you over to our CEO, Christoph Petri, who will lead you through this call.
Thank you, Ingo. Good morning, ladies and gentlemen, and welcome to our first quarter earnings call. As predicted already Ringmetall was facing a challenging first quarter in 2023 and our global businesses clearly felt the impact of several headwinds. Revenues declined by 9.3% to EUR 51.7 million, while EBITDA dropped by 15.6% to EUR 6.3 million.
Our different business units experienced very different developments. However, we clearly see a general downturn in our end markets with the chemical industry slowing down the most. This is supported by lower steel prices and of course, compared to a very strong prior year quarter. While our rings business unit saw significant softer demand in all regions worldwide, our liner business unit was able to generate a pleasing increase in volumes and revenues despite the challenging environment.
Next page, Ingo. The main impacts on the revenue side are volume decreases, which stand for 8.1% in decline and declining steel prices, which stand for minus 4.8%. This was only partially offset by acquisitive effects from our latest acquisition of Protective Lining in January this year.
The volume effects resulted from substantially lower volumes in our ring segment, which very partly was offset by a strong increase in the liner and Industrial Handling business units volumes. Ringmetall's strategy on broadening its product lines and customer base with an increased footprint in noncyclical industries like the food and beverage industry clearly pays off in this environment.
The acquisition of Protective Lining earlier this year underlines this clear focus and gives Ringmetall now the opportunity to serve our global customers in the North American market, and to participate in this developing market.
Next page. Our rings business unit was heavily impacted by a significant downturn in the chemical industry globally. Across all regions and customers, we have seen this trend already in Q4 2022 and have prepared ourselves accordingly. While the demand situation remains uncertain, Ringmetall has taken several measures to adapt to the current market conditions. Inventory levels were reduced, leased workers contracts were discontinued and pricing discipline was enforced.
On the other hand, we were able to expand our Industrial Packaging liner business unit against the economic downturn, strong customer focus, commitment to quality and new investments into core production techniques were key to this success. The broader focus on different end markets like food and beverage, but also the adhesive and pharmaceutical industry helps to balance the plummeting demand from the chemical industry.
Within our Industrial Handling segment, we continue to experience very strong demand from different end markets like the forklift, but also the [ line machine ] industry. The order backlog reaches way ahead into Q4 2023 already, and revenues are already up by 8.2%. However, we still struggle a lot with a disruptive labor market in the region and skilled worker shortage. This combination leads to a substantial quality issues and costly measures to fulfill customer demand.
Next page. Despite the heavy headwinds in the rings segment compared to prior year, we also see a lot of light at the end of the tunnel. Compared to Q4 2022, volumes have clearly stabilized and the whole market improved since then. With the continuation of the development in our liner segment, and the resolution of the key matters in industrial handling, Ringmetall is confident to reach our set targets for 2023. On the revenue side, we expect to be between EUR 195 million and EUR 220 million. And on the EBITDA side, we expect a range between EUR 22 million and EUR 28 million.
The key focus for Ringmetall in the current operated business is the further -- is to further deleverage our balance sheet to gain even more firepower for additional acquisitions. In that respect, we were able to further reduce our net debt position despite the acquisition of Protective Lining.
We are continuing to actively discuss several acquisition options, and I'm excited about our strategic growth plan and the growing list of attractive businesses in our M&A pipeline. However, we are also committed to our strict discipline in capital allocation and acquisitions and will only focus on the highest quality businesses to fit the Ringmetall portfolio.
With this, I will hand over to Ingo now for our Q&A session.
Great. Thank you, Christoph, for the presentation. [Operator Instructions] And indeed, the first question comes from Holger Steffen from SMC Research.
Thank you very much for this detailed report. First of all, you have mentioned problems with the quality of your industrial handling activities. Can you give us some more details? And when do you think you may have solved these problems?
I don't hear anything.
Can you hear me?
Okay.
Obviously, Christoph, there is still a technical issue on your side. So how shall we do it now? Can you dial in with your phone, Christoph? Okay. Just a moment, we'll try to solve it this way. Just a moment please. Christoph will join in a minute. I'm sure Christoph will join in a minute. So Christoph, now you should be back online. Is that correct? Can you hear us now?
Altogether.
Yes. So now -- yes, I can hear you. Can you hear us?
Sorry about that.
Great. So Holger, please ask your question again. I'm sorry for the technical issue.
No problem. Mr. Petri, you have mentioned problems with the quality of your industrial handling activities. Can you give us some more details? And when do you think you may have solved problems?
Well, of course, I can give you some more details. The issue is that, especially in our welding department, we have a clear lack of skilled workforce, and is causing us tremendous issues, which means we have now installed a second Q Gate, which means a quality gate. It's an external person checking each and every part, which is going out to the customer. This is additionally to our own internal Q Gate.
And with this, we can filter out all the bad parts. However, obviously, it's a very costly measure which we have taken. We are now taking further action internally. We believe that this second Q Gate will be necessary for at least another 2 to 3 months.
So basically, in the half of this year, we will have a clearer picture on that. And we will see if the items we have taken are working the way we want it to be. But currently, it still is a very tough situation. It's, however, also a very odd situation because we are telling our customers to order less, if possible, because we cannot really work or have a constant workflow with this.
So we would appreciate and prefer to do less for our customers to sort out our problems at first. But they clearly say no chance. We are sending you the orders, and we need the parts. So yes, as I say, it's a very odd situation, and we are dealing with this now. We are dealing with this for already 2 to 3 months. It's a situation which is not satisfying, obviously. There's not that much we can do about it, at least on the short run.
Regarding these problems, the sale of this division is not an issue for the moment. Isn't it?
Well, we are constantly looking at our portfolio, of course. And we had a discussion already about divesting [ HSM or industrial handling ]. Currently, we would say that we focus more on solving the operational issues, and rather than stepping into longer discussions. We have no process currently running to sell the business. However, as I say, always in discussions, and we are always checking our portfolio, whether it makes sense to keep industrial handling for the moment or not.
Okay. I understand. In your annual report, you said something about your solution for piping connections. They are still at the stage of marketing crude introduction. Can you give us an update about the response of customers and the potential revenues this year?
Yes. It's -- well, first of all, the potential revenue for this year, which we expect is around EUR 1 million to EUR 1.5 million, which is not significant, of course, but it is sizable. And therefore, we are quite happy with the current situation. The experience, which we gained over the last year is that we have to change our production sites actually.
Currently, most of these rings are being produced in China, in our Chinese plant and then sent over to Europe. Our customers in that region or in that segment clearly say that they need European origin. And therefore, what we are currently doing is we will install a new machine where we can produce these kind of rings in let's say, more effective way. And this will all happen now in 2023.
And from that moment on, we will be able to hit the ground even more and increase the volumes in this segment. And as I say, for 2023, around EUR 1 million to EUR 1.5 million, and we are quite happy with this.
Okay. And in your ring business, your customers reduce their stocks. Have you any idea when this process will be finished?
I wish I would. Unfortunately, I don't. Basically, what we see is that the chemical industry is heavily down, not only in Europe, but of course, mainly in Europe. If we look only into Germany, we see that in 2022, the volumes -- the production volumes have reduced by 10% overall. And only within the last quarter, it reduced by 20%. And this is obviously hitting us as well.
And we -- what -- how we see the market is we believe that we will see a certain stabilization now in Q1, which means that volumes have stabilized on a lower level. And we expect that these higher levels, which we have seen in the past will not come back on the short run.
And we prepare ourselves to adjust our capacities is lower volumes now. And at least for Europe, partly for the U.S., and we will slowly build up further capacities now in Asia because that's where it's happening. That's where the chemical industry is going to, and we are looking at this market now even closer.
Okay. And in your first quarter, your gross profit has reduced only 1%, but EBITDA went down by 15%. Can you give us some more details about the main cost drivers? Are there some special effects maybe resulting from the acquisition?
Yes. What we have seen is, in the end, it's 2 effects. The first effect is we have lower steel prices. It means that the revenue side comes down, the gross profit usually was slightly up in percentage points -- so compared to the total output, that's the mathematical effect. So that's 1 effect, reduced steel prices.
And the other effect, of course, is that the Industrial Packaging liner segment has gained markets in our portfolio. So we are -- we have seen a massive increase in revenues, not only due to the operational business of Industrial Packaging liner, but also to the acquisition of Protective Lining. And traditionally, the Industrial Packaging liner segment has a better material rate, which is -- which causes a higher gross profit, gross profit rate.
Okay. Okay. My last question. You're introducing a new machine generation for the ring production. What's the state of the rollout? And what's the investment volume this year?
This is a new profiling machine, which we have rolled out already in last year. It was a development over a period of 3 or 4 years. It actually took us a long time until we really had it the way we wanted it to have. It's a great machine because it allows us a lot of flexibility, a lot lower change over times and more accuracy, which will help in our quality.
So we are really, really happy with this machine. We have rolled it out in Germany already by installing 4 machine segments already 4 lines, total lines. And for this year, we will have additional investments of roughly EUR 500,000 to EUR 600,000 for some additional machines which we will install also in Germany.
The next step in that respect will be that we are currently exploring the options to further automate our welding systems. It's then the next step which will bring us even more flexibility. And obviously, with more automation, we will be able to offset the labor shortages.
Great. Thanks, Holger, for your questions. Now we have some questions from the chat, Christoph. So the first 1 is organic growth slowed down to minus 8% year-on-year in Q1. What should we expect in Q2 and for the full year 2023? I would assume the inliner business should help you to reaccelerate organic growth from Q2 onwards. Would that be fair to assume?
Well, basically, I think it is. And what we have to face is 2022 was a very compelling year. I mean, we had a record year and especially driven by the first and second quarter. So if we look into the organic growth compared to 2022 then, we will see more or less a continuous trend in Q2, which means we expect that the organic downturn should be not more than 8%. That's quite for sure. But anywhere between 5% and 8%.
And some of it can be offset by quite a strong liner business, that's right. Our -- especially our products, which go into the food and beverage industry like the bag in box systems, beer tank, inliners and so on, they are really soaring and going through the roof.
So for us, currently, we are trying to cope with our capacities. We could actually even accelerate this business even more if we had our new ordered machines already in place. We don't have it currently, but at least we have ordered it, and we have a clear plan on how we increased this.
So basically, if we look into Q2, as I say, we should come up anywhere between 5% and 8% total reduction. And for the total year then, since the second half of 2022 was then significantly weaker. We expect that the reduction of the decline overall should be anywhere around the 3% to 5%. That's our expectation. Ring business will be down by roughly 10% in that case and the liner business will compensate some of it, but not all.
Great. Then we have a couple of questions also from the chat coming from Alexander Jagoda. First one, with the low profitability in Industrial Handling due to quality issues as a result from lack of workers. Do you still expect to be able to sell the business if still intended? Or have you missed the best point in time to get rid of it?
I would say that the future will tell us if we have missed the best point. And retrospectively, it's easy to say that, of course. Again Industrial Handling is not our core business, so it is not our core focus. We are quite sure we could sell it if we wanted it. And maybe there comes a certain point in time where we say the complexity of keeping this business unit inside the group gets too big and we are willing to even set a certain hits on price.
But on the other side, the business is still contributing on the revenue side and on the profitabilities. At least for the last year, we had a nice EBITDA contribution. And as I say, future will tell. We are currently not in a sales process and [Technical Difficulty]
Christoph?
Yes?
Okay. Now I can hear you again. So next question. Interestingly, Q1 was already better than Q4 2022 in respect to Industrial Packaging. Do we have the worst behind us already? Or will the remaining quarter still be difficult?
Will be still quite difficult. I mean, first of all, what we have seen in Q1 is also a certain catch-up effect there with -- because the destocking came already in Q4. In some regions, the customers have come to a stable volume in Q1 again. And what we see in Q2, at least from our current visibility, it will be still quite shaky. However, we are fine with that and confident because we have adopted certain measures. And from a profitability point of view, I would actually say that we have the best behind us.
I mean, no one -- I cannot really see what's coming up in the second half, therefore, it is tough to say. But from a current perspective, I can surely say we should have seen the worst and should see a certain stabilization. And looking into the figures now, if we hadn't had this confidence, you would have needed to adjust our guidance. We don't do this because we see this confidence.
Great. Third question from Alexander. You mentioned a good environment for M&A. Can you give a rough indication about size, revenue and potential M&A multiples?
I can give you some more meat on the bone there, yes, but no details, of course. We are looking into different companies, and I've mentioned it in my presentation, the list is growing nearly every day. The main focus for us is currently the inliner segment. We are looking not only in Europe but also in the United States.
And size-wise, businesses vary from actually only EUR 1 million in revenue up to EUR 25 million in revenue, all of the companies are profitable. We are looking at multiple wise, I can only refer to our capital allocation discipline, which says we try to get the company's -- the valuations definitely by our own multiple targets. And there's not much more to say about that.
Okay. Next question also from the chat comes from Werner Friedmann. Do you believe you have gained or lost market share in the ring business in Q1?
No, absolutely not. That's a very good question, and we had a look at that in detail actually. And what we see is, of course, we have lost some market share in certain customers, but gained some others then.
If you look into our main customers, you will see that, for example, Greif is the biggest, they have lost more business -- they have decline rates, which are even above our decline rates in the ring business. The business -- the volumes for Greif went down in first quarter by -- that's what they reported in March by 17%.
And therefore, we are actually absolutely sure we haven't lost any market share. And actually, we even gained some market share in the Industrial Packaging liner business. So from a market share perspective, we cannot say that we have lost any.
So that's it for the moment from the -- for the questions from the chat. Are there any further questions, and please raise your hand or ask a question in the chat. So this doesn't seem to be the case.
So I'm handing this back to you, Christoph, for your final words.
Final words. Well, thank you very much for your attention to all of you. And please stay tuned for further information on Ringmetall, as I say, very excited about the next month, and I'm pretty sure that it is a good year for M&A, at least if it's not only a good year for financials, it's at least a good year for M&A. I'm pretty sure about that. And there are no additional comments from my side, there are no appointments to be announced -- so just.
Great. So thanks, everybody, for joining this call today. This call is now coming to an end. If you have any further questions, please don't hesitate to contact us directly. We're always there for you. Thank you very much until next time. Bye-bye.