Manz AG

XETRA:M5Z

Earnings Call Transcript 2023-Q1

[Axel Bartmann, executive]

Thank you very much for joining us for Manz AG conference call regarding the publication of the financial figures for the first quarter of 2023. My name is Axel Bartmann and together with our CEO, Martin Drasch; and Manfred Hochleitner, we are very happy to welcome you to this call this morning.

As usual, first, our CEO, Martin Drasch and Manfred Hochleitner will give a short overview on the operational and financial development in Q1 2023. And afterwards, you will have the possibility to ask them your question. [Operator Instructions] One last point before we start the conference, this conference is being recorded. I would like now to hand over to Martin Drasch and Manfred Hochleitner.

[Martin Drasch, executive]

Thank you, Axel. Good morning. Welcome from my side to our first quarter number call here. And we will start directly with the highlights of the first quarter. We split it into our divisional setup. So we see here, we had a good and really good start in the overall 3 months numbers of 2023. And this was based also in the division Industry Solution based on our industrial automation part where we had a quite successful start of a U.S.-based OEM customer, which started our production or production with our tools here, which was on time and in schedule, which was a good success for us in the U.S. market, which is booming, but we will see here in this regard, further information later in the call.

And also, we had a successful SAT at a Tier 1 customer for assembly line for cell contacting systems here in Germany, which shows how good this development for cell systems and the growth market is here as well in Europe. In electronics, this is our Asian-based business we have. We see a high interest from quotation. So we see now that this downturn, we see the last -- we saw the last 2 decades due to the quarters is now improving.

We see the market is coming back, which was highly impacted of the trade war and other topics out of corona. So we see this market is coming back and a really good development for incoming requests for quotation. And additionally, we received the approval from a subsidy program in Taiwan from the Taiwanese government to further improve our FOPLP measures and the copper plating tool, which we have developed here for bigger sizes in the future.

And also, we see with this program that we can increase the speed of our development program for this topic and increase the competitiveness of Manz in this direction. On Mobility & Battery Solutions, as you have seen, we have received a multimillion euro order from Daimler Truck, which when we have a cooperation agreement for the development of their cell production. This is very important for us that this is moving ahead.

And additionally, you have also seen that we have made a swap deal with Customcells Tübingen where we had some stakes in with the Customcells Holding where we changed our shares into the Holding structure, and this is a very good development for us as the Salesforce Group, which also is a part of company at the end of the day as part of this construct, and we therefore, see huge opportunities in the future to increase our business with the Customcells Holding and the related auto companies in this business.

For the KPI development, you have seen that we have a little bit weaker order intake compared to the first quarter in 2022. This is due to 2 topics. One of our -- first of all, is that the order intake in 2022 was on a very high level compared to the last years before.

On the other side, due to this inflation reduction , we saw some deviations and shifts of planned order intakes, which have not been made like discussed with our customers. So there is probably Q1, a little bit a weaker number. And this also then reflects in our cash and cash equivalents as these down payments from the order intake is an important topic for us, but this will then improve in same amount than when we receive the order intakes from our customers where we have actually the negotiations with.

The revenues, as you have seen, is on a very good level. So we have received EUR 76 million of revenues, which is approximately 25% higher than the amount we have had in the Q1 of 2022. And this, for sure, also has a good impact on our EBIT and EBITDA numbers, which improved a lot compared to the Q1 numbers in 2022. So far from my side about the highlights and the KPI performance developments, and I will now hand over to Manfred Hochleitner to give you some more details and insights into the financial figures.

[Manfred Hochleitner, executive]

Thank you, Martin. Also from my side, a very warm welcome to our first quarter call here today. So as Martin already mentioned, the revenues came out roughly at EUR 76 million. So a strong increase of more than 25% compared to the first quarter of last year. And the growth, as Martin already mentioned, is mainly driven by a higher demand in our segment Industry solutions, whereas the growth in the segment, Mobility & Battery Solutions was lower due to less order intake in the past months.

The other operating income includes the positive onetime effect of the share swap, which Martin just described and mentioned. And the positive effect is due to the significantly higher fair value of the shares in Customcells Holding GmbH compared to the shares in Customcells Tübingen GmbH.

Very good development on the material cost ratio side. The material cost ratio is roughly at 57% and significantly below the ratio of last year. The reason for this is mainly a change in the product mix compared to last year. So we had a lot of repeat orders from existing customers, which led to this significantly lower ratio compared to the last year.

Aside from that, we see now that material costs have stabilized compared to the strong increase of last year. So this is already included all in this number of 57%. The operating expenses are mainly influenced by losses on exchange rates and a loss provision for project and execution. We think that we can roll back these loss provisions in the next couple of months.

Overall, as Martin already mentioned, we achieved a very strong positive EBITDA of EUR 8.3 million compared to minus EUR 2 million in the previous year, and EBIT increased by more than 200% and reached a number of EUR 5.4 million which led to a positive net result in the first quarter of 2023 of EUR 4.4 million.

So for the overall view on the P&L, and let's move on now to the different segments. We start first with the segment Mobility & Battery Solutions. As we already mentioned, the growth here is relatively moderate due to less order intake in the past months. But overall, given the current market situation with a shift from Europe to North America based on Inflation Reduction Act, this proves a solid progress of major customer orders, nevertheless.

The EBIT of this segment ended up at EUR 0.4 million, which is a growth of roughly EUR 6 million compared to last year. And the EBIT includes, as I already mentioned before, the effect of the share swap to Customcells Holding in the EBIT number. Aside from this, we see important new orders, as Martin already mentioned, from Daimler Truck and from ReneSys, an Italian customer that wants to build several factories for power supply companies in Italy.

And this diversification on various Industry segments of automotive and nonautomotive is one of our strategic key factors here for the further development of this segment. In the segment Industry Solutions, we see a very strong growth of 41%. So we ended up with EUR 47 million of revenues, a very strong growth compared to last year. And also, the EBIT shows a strong positive result of EUR 4.9 million, which corresponds to an EBIT ratio of 10%.

The main reason is that, as I already mentioned, we have here repeat orders from existing customers with a good mix and healthy mixture of new customers with new orders like Ambient Photonics for a production line for organic solar cells. So we see that this segment has a very healthy structure right now. And has made a lot of progress in executing new orders and maintaining also good relationship with existing customers.

The same is true not only for the German market, but the same, as Martin already said, is also valid for our markets in Asia. We see that this market is recovering, and we see also there increasing demand for our technologies, not only flat panel displays industries, but also in the chip and semiconductor business.

Having a look on the balance sheet, there is nothing too spectacular. We see that the balance sheet total came down from EUR 344.8 million at the end of last year to now EUR 330 million. On the asset side, we see a reduction of our materials and stock after the global supply chain challenges, and we have now focused on reducing stock again.

So we are coming back more and more to normality. Again, and our trade receivables reduced by EUR 4.5 million. And due to the lower order intake, we see a decrease also in cash from EUR 33.6 million to now EUR 16.5 million. Correspondingly, both the trade payables and the contract liabilities were reduced by EUR 17 million and EUR 13 million, respectively.

Based on this, our net debt increased now from EUR 10.7 million at the end of last year to now EUR 38.1 million. The positive net result led to an increase of our equity ratio from 29.7% at the end of 2022 to now 32.4%. On the cash flow side, as I already described, we see we have less order intake in the past months. So this led to a negative cash flow from operating activities with minus EUR 20.9 million, and this is mainly due to a reduction of liabilities, which could not be compensated by new cash in from new order intakes.

The prefinancing of our IPCEI projects led to a negative cash flow from investing activities of minus EUR 5.5 million. And the outflow of cash was mainly compensated by a higher usage of our financing lines, which is shown under the cash flow from financing activities in an amount of EUR 9.4 million. So at the end of the first quarter of 2023, our cash position amounted to EUR 16.5 million. So far, the overlook of our numbers, and let's move now on with the strategy and outlook. And I think now for this to Martin Drasch.

[Martin Drasch, executive]

Thank you, Manfred. We will go on with our strategy, short-term wrap-up and a reminder how we are acting. As you know, we are equipment, high-tech equipment manufacturer and we drive with our innovative solutions growth market. So that's what we are doing. We have for this one, two segments. The one is our Mobility & Battery Solutions and the other department and division we have is our Industry Solution.

And in the Mobility & Battery area we really target to go to the top 3 of the EU and U.S. supplier for the integration of production equipment. And in the Industry Solution department, we are the renowned solution provider for assembly and production solutions. And this is based on our 4 pillars which are actively seizing of opportunities in this new and growing markets where we are in; and the realization of business potential in the mature markets; and for sure, then our technology-driven setup where we have a lot of R&D and development capabilities where we define the solutions and technologies for the businesses of our customers.

And based on then the good solutions we have in the market, we see also a huge opportunity in the future by further expanding our service business in this direction. That's the overall strategy, and let's go a little bit deeper. So we see it there in the future further potentials and growth markets and Industry Solutions, especially we see here a huge growth potential in the automotive market, driven by the transfer from the combustion engines to the electric-driven cars, and therefore, the electric powertrain components are a huge growth potential for us, such as cell contacting systems or inverters.

So we see here with our solutions, we have now several years already in the market as a proven concept with our LightAssembly platform, where we can integrate different processes like laser processes, soldering processes, but also screwing and assembly solutions in a module line to adapt this step up then to the needs of our different customers. So we are quite fast in a solution definition process and can deliver to a very short time to market the demands from our customers.

We see also a huge ongoing strong demand from -- for assembly solutions also in demand, automotive market, especially also here for power electronic production, for example, inverters for solar production. For example, this is one of our areas where we are in, but also a lot of industry productions need now a higher assembly technology to modularize and to standardize their business to really reach out here for lower cost, and that's what we also see as a huge potential.

Like described in the last quarters already, the first order intakes in the digital printing technology, now really moving ahead. We see a lot of demand from different customers and also from different markets for this technology where we have the target to make the quite good quality and performance of the printing heads in combination with our fast and precision assembly technology and also conveyor technology to really to an advantage for our customers.

And here, we also see a huge demand in the semiconductor area, which is actually coming up for the functional printing of layers in this area. Also, this leads them to an excellent position, which we already have in this FOPLP and IC substrates market where we already saw a lot of order intakes also here with this technology, which is now in production already in the markets. We see further demand from our known customers, which asking us for further equipment to increase their production set up in different areas as well.

In Asia, in the U.S. and also here in Europe, we see some increasing demand. This is underlined here on this graph. You see this on the left-hand side, our lending and market research we have done for the cell contacting system, worldwide. You see here nearly a doubling of the numbers from 2023 to 2027, which gives us here a good opportunity with our already developed technologies and knowledge we have in place for different lines we already have in production with our customers to achieve here in the future, further order intake, which is needed with more models coming up from different OEMs in this direction where they need to have this cell-contacting system, which is one of the keys.

Also for the battery management system of module and tech solutions in the OEM area, but as well also for industrial productions where batteries packs are in the cell contacting system for industrial solutions also is in our focus in this direction.

On the right-hand side, you see also the graph which we see for the development and the growth of the inverter, which is also needed to make out of AC DC current. This is one of the most important topics, which is then leading to a better performance and also a range of cars at the end of the day, the less we have in the inverter process is in, the better or the range -- for the cars.

And therefore, also this product is quite interesting for us. We also have here some lines delivered and in production, and we see also here, especially in the U.S., actually, a demand, which is growing for RFQs, for our solutions and technologies we have already developed and in place here.

Coming to the growth potentials in our Mobility & Battery Solutions, as already stated several times, there is a huge market development on Lithium-Ion battery cells. And we see here a market demand for battery cell assembly equipment, which has reached now a forecast of almost USD 9 billion for 2026, which is a CAGR from 2022 to 2026 of roughly 20.1%. And with this growth, which is now really in the starting position to get now realized in several areas, but especially also in the U.S. market driven by the Inflation Reduction Act, which we will come later a little bit in for more details what's going on here and what's then, hear the opportunities and chances for Manz in this direction.

So this market is really booming and you see this also on the sales numbers of our OEMs here in Europe, but not only in Europe, also in China. In U.S., the numbers are increasing. And therefore, the battery cell production equipment is of a high need to really fulfill this growth demand from the OEM side. As you have seen already, we have a quite good network with our European turnkey suppliers. And we are actually the only one which can deliver entire gigawatt set out of Europe with our partner network with Manz.

And therefore, we have now developed and finalized our setup for 10 gigawatt line, which we can offer now part of this partnership. And the majority of this equipment is now available, and we are already here in discussions with some major customers, which are interested in the solutions this partnership can provide.

Also, what we see as really changed now is the really fast start of the North American business we see related to the battery cell manufacturing, which is clearly stipulated and also clearly also driven by the Inflation Reduction Act. So we expected this one year ago earliest in 2 to 3 years. Due to this subsidy program from the U.S. government, we see this as really now starting.

We have here already a huge number of RFQs coming in from different directions for demand for module lines and as well battery cell lines, which are then covered by the subsidy program and which is by interest, which I will show you all later on a little bit more details of what's the impact on.

So this is from our side, what we see here, and we are quite well prepared for this market as well in the U.S. So we saw it as mentioned a little bit later in the U.S., but nevertheless, with our preparation and anchor machines we have developed here. We see also a good chance now to modify our equipment and it is also well ready for the U.S. market.

Coming now to the overall market view, which we have seen, you know our rather. So we have splitted the European market, which we stop now in an addressable market by month in an addressable market, not yet served by Mans due to time constraints and as well the readiness of the end customers to send out their RFQs or the non-addressable market where due to decisions of the end customer or product-driven special features, which we cannot supply as another addressable market in the different areas.

Also you see where the headquarters of these different sales suppliers are set. And overall, we have seen already in the last months, still in growth of the announced installations in Europe from 1.2 gigawatt hours to now 1.4 gigawatt hours, there are more than 46 projects announced in the EU, which are planned to start for cell production in Europe. What we see here is, from our point of view, and this is clearly also our target here in Europe.

Germany will be the largest market for the installation of these battery cells, which is good for us. This means short connections with customers and a very good connection network with our setup of our companies we have here, so we have really short connection lines to the different customers, but also France and Spain is quite interesting for us in this direction to have further business.

What we also see is that some of our customers, and this was mentioned before, now moved their planning, which was planned in the EU. Now to the North American area versus the European region, for example, here, Freyr, Northvolt and Tesla and Volkswagen have announced this that they prioritize now the installations first in the U.S. and then in the second row, they focus the European market.

This leads us now to the overview for the Inflation Reduction Act, which I mentioned to you. We showed this in a graph and to show a little bit the opportunities and as well risk this means for Manz. So the table has to be read like the following. If a customer plans an 8-gigawatt-hour installation per year, then sum funding and subsidy level in the EU, which is the blue line and the green one is the U.S. part. You see that there is roughly the double to 3x higher subsidy level in the U.S. on this 8 gigawatt installation compared to the EU.

And if you go to nearly 50-watt gigawatt hour installation, you see that the subsidy level is nearly 10 to 15 higher than compared to the EU in the North American area. This is clearly that this leads then to a decision process of our customers to prioritize the U.S. market as due to this fact then their end product is nearly 30% cheaper compared to production in the EU.

And this is really not taken already in account that also the energy price level in the U.S. is more stable and secure than in the European Union, actually. So that's the reason why I'm very visible now for everybody, I think why some of our customers hesitate to place orders for installations in EU and transfer now their planning to the U.S. market, which leads to some delay in some projects.

But nevertheless, with this setup, I think even then the competitiveness of this end product in the global market is better with this pace. Coming then to the expected market overview in the North American area, what we see.

Also here, you can see that already some projects we had seen as addressable and are working already on this one. But due to this, let's say, change in this Inflation Reduction Act and now more clarity how this works and who we work with this one. We modified it, and we make this in a little bit slide show where you can see that a lot of not addressable projects due to the IRA are now in the addressable region and also the already served projects we have in means that we are working here on RFQs and orders for our customers have increased due to the fact nearly by 50%, due to this change in the prioritization from our customers.

Coming now to the order intake and the backlog situation like already announced, we have a little bit weaker Q1, like also reflected in the industry, quite good order intake still in the mobility and battery area with EUR 30.2 million. Also, you have seen, we have announced a further order intake, and this is the shift between the quarters and also quite really good order situation in RFQ situation.

And our pipeline still growing, a lot of demands coming in. Industry Solutions is a little bit weaker. This is also due to the fact that we are quite selective in the industry automation area where we had a quite good order intake in Q4 and Q3, which we are now working on and processing. We have still some very low situation for all the placements in the electronics area.

It means in the Asian market, which we see now really covering up but still behind our expectation we have seen in the last quarter here. And we are working actually on also several projects which we expect for Q2 as an order intake to really pull this in and to increase the order intake situation to our brand level.

For the order backlog situation, you see we're still working on a quite good pace with an overall order backlog end of Q1 by over EUR 300 million. Mobility & Battery Solutions with EUR 190 million roughly and over EUR 110 million in the Industry Solution area. In Mobility & battery, still the project of Britishvolt is reflected as we have so far not yet reached an agreement for the cancellation of the project with our customers.

Coming now to the guidance. As you know, our guidance we published a few weeks ago. We see an increase in revenues in the lower double-digit percentage range and an EBITDA margin in the mid-positive single-digit percentage range. And the EBIT margin we see in the low positive single-digit percentage range and with our Q1 numbers. I think this is a quite good start into the year, which reflects that we are here in a good way to fulfill our guidance we have given for 2023.

That's it from our side now, and we are now happy to receive your questions.

[Axel Bartmann, executive]

We see that there is a question from Mr. Rüzgar .

[Unknown Analyst]

I'm taking two questions from my side. The first one on Sunlight Group. Can you provide some insights about this project? I mean, we have read about that in the social media and now about the gigawatt size, but can you share some details with regard to the volume and time schedule, et cetera? It would be also interesting to know how much of the Q1 revenue is related to this business?

[Martin Drasch, executive]

Sunlight, I think you know they're coming out of the solar industry and using our production line to assemble modules for energy storage in regard to the business model to invest into solar parts and also the related energy storage area. We have, in total, 4 lines from this customer in order. 2 are already received the SAT level. The rest is actually in the progressing. Most of the revenues are already processed. So the other nitty-gritty, the volume of the revenues in Q1 was roughly EUR 3 million to EUR 4 million for this quarter. And we already received further RFQs from this customer to increase their production equipment as their business is going really well. And the good thing is that this is an complete repeat business, no modifications on our lines or just minor topics related to the sites where this equipment will be installed and customer is quite happy because we delivered in time and quality to this customer that is able to provide this solutions to the market.

[Unknown Analyst]

And the second one on your order intake and to get a more clear picture on your figures, can you shed some light on the volume of potential orders so far that are impacted by the reluctance of your customers due to the Inflation Reduction Act. So basically, what is the amount of orders of your European customers that is currently held back here?

[Martin Drasch, executive]

So we know this very, very detailed as this was in our planning for Q1 already and also Q4, which we have this -- we had the RFQs with our potential customers here. And this is an amount which is around EUR 100 million of potential order intake, which is actually on hold where we have already done the RFQs and are in the stage of final negotiations for, let's say, the related equipment.

And now due to this Inflation Reduction Act, we have some discussions regarding where it will be installed. And this then for sure, as you know, most of the customers in the U.S., they would like to have also other components. For example, the UL topic, which is a special standard for electrical equipment needs to be recognized, but also some of the customers in the U.S. preferred in Rockwell or Bradley or other PLC components, which then needs to be adopted. But roughly EUR 100 million of potential order intake is due to this Inflation Reduction Act discussion shift.

[Unknown Analyst]

And when do you expect these orders of EUR 100 million?

[Martin Drasch, executive]

We are still in negotiations and reworking with our customers. It's also a topic which is coming up now, as you have seen this table I showed of the subsidy levels based on if you have 8 gigawatt, 20 gigawatt or 40 gigawatts. So this is also a topic which they are discussing now if they start with a bigger setup.

So increasing the order volume due to the fact that then the subsidy level is higher. And therefore, there are still discussions going on, but we see some good potential for Q2 to have at least some of these decisions negotiations done, but also part will be in Q3.

[Unknown Analyst]

And maybe one further question, if I may. On your recent order from ReneSys and you mentioned in your press release that there is a letter of intent with the customer to deliver 3 additional lines. Does that mean that we can buy the current order by 3 and end up with EUR 75 million? Or will be the final amount significantly higher than that?

[Martin Drasch, executive]

We are still in discussion as this is -- we call it the turnkey line, where also, let's say, the complete intralogistics is part of the business, which is in the first quarter, not fully reflected. So we are already discussing with the customer some amendments and extensions of the order and due to the different sites and also a different setup of these production sites. There is a potential that even this volume can be 10% to 15% higher than the published number we had received for the first order intake for the follow-up LOIs. Which we always -- for the LOI, which we have received.

And by the way, this is not the end of the story. This is for further European countries. There is a plan and also for North America received now an RFQ demand from this customer to have here with this concept further lines installed. So actually, we are working on that, on a plan how we can schedule this by quarter to receive their further order intakes from this customer and also to deliver to the U.S. several of these lines.

[Unknown Analyst]

And where your partners cope and they're also involved in this contract?

[Martin Drasch, executive]

One of these partners is already in for the electrode manufacturing, he will supply here coater and the dryers and the others, as this is actually not in -- this is not a module line, it's a pure assembly line. But depending on the further plans of the customer for the module assembly, this is a further potential also to have here a part of the equipment delivered for Manz from the partners in this direction.

[Axel Bartmann, executive]

[Operator Instructions] Thank you very much for your attendance of our today's call, and we will now close this conference call.

[Martin Drasch, executive]

Thank you very much. Bye-bye.

[Manfred Hochleitner, executive]

See you next time. Bye-bye.