R Stahl AG
XETRA:RSL2
Earnings Call Analysis
Summary
Q3-2023
The third quarter of 2023 was marked by robust performance with order intake rising 2.5% to EUR 82.1 million, leading to a significant sales increase to EUR 86 million. EBITDA soared by 40% to EUR 13.5 million, a six-year high, resulting in a remarkable EBITDA margin of 15.7%. Net profit also grew by 18.8% to EUR 6.2 million, despite the impacts of higher interest rates and taxes. The earnings per share reached EUR 0.96. The company demonstrated its ability to manage inflation, achieving an improved cost of material ratio of 33.4%. A cautious outlook for the following quarters is noted, due to a flattening order intake. The sales forecast remains between EUR 305 million and EUR 320 million, with an increased EBITDA guidance from EUR 35 million to EUR 40 million. Free cash flow is expected to be a low single-digit negative amount, and a slight equity ratio increase is anticipated by the year's end.
You don't have any saved screeners yet
Ladies and gentlemen, welcome also from my side, and thank you for joining our today's conference call. Our prepared slides are available under the Investor Relations section of our website, www.r-stahl.com. Shortly after we will have finished this call, a replay of the entire conference will be provided for download at the same place. Please be aware of our disclaimer statement, which you will find at the beginning of the slide deck. And now, I'll pass on to Dr. Mathias Hallmann, our group's CEO, who will walk you through our presentation.
Yes. Good morning, ladies and gentlemen. Warm welcome to our Q3 2023 Analysts and Investors Conference Call. I start with a summary. What we saw in Q3 is actually a very nice profitability. But let me start with the order intake. It improved 2.5% to a level of EUR 82.1 million in comparison to last year, mainly driven by high demand from the Americas. Sales showed a very strong year-on-year increase to a level of EUR 86 million. This is actually a result of significant performance improvements in our operations footprint, which we overall could develop to very much an improved level. EBITDA increased by 40% to a level of EUR 13.5 million, resulting in an EBITDA margin of 15.7%. This is also a number I haven't seen since I'm in this company since 6 years. Free cash flow improved EUR 4.8 million to a level of minus EUR -4.8 million. So I think also the free cash flow side or cash flow side, we are now at a turning point.
Net profit raised 18.8% to a level of EUR 6.2 million. Here, we see the impact of higher interest and higher taxes and earnings per share came out at a level of EUR 0.96 per share in Q3. If we look at the sales side, we see growth in all regions, but what clearly steps out is the development in the Central region with a growth rate of 31.2%. We see more moderate growth in all the other regions. But also here, we have to have in mind that Q3 2022 was already the strongest quarter last year. So a very nice development on the growth side. If we look in our profitability statement, clearly, profitability is driven by the high sales volume of EUR 86 million. But what we also see is a very good cost of material ratio of 33.4%. Last year, we had 35.4%. It indicates that we were able to manage inflation very well. And we still -- when we look in our order pipeline, it's very solid. And our expectation is that we stay on this improved material ratio margin. Personnel costs moved up 10.5%, still lower in comparison to the overall growth, but significantly higher than what we reported in the first and in the second quarter, but that was expected, and we announced it in our last call that we will now see the effects of the negotiations with the unions and salary increases. Financial results declined by EUR 1.6 million. That's driven by the higher interest rates. And then taxes moved up driven by profitability. I mean, that's natural, so that we'll end with a net profit of EUR 6.2 million against EUR 5.2 million last year, but you have to have in mind that last year Q3 was already the strongest quarter since many years and then the earnings per share of EUR 0.96 and the EBITDA EUR 12.9 million, EBITDA pre EUR 13.5 million. Coming to the free -- to the cash flow statement, which rose -- cash flow itself rose up EUR 2.4 million to EUR 12.1 million due to increased net profit. Cash flow from operating activities benefited from a lower buildup of working capital of EUR 13 million in comparison to EUR 16.2 million last year. And overall, the free cash flow improved EUR 4.8 million to a level of EUR -4.8 million. And net debt is now at a level of EUR 48.4 million. When we look in the sales and order and profitability development over time, we see the nice development of our sales. We see the nice development of our profitability. What we also see is a certain flattening of the order intake, which makes us a little bit cautious when we look in the first and second quarter, maybe of next year. We are -- we have solid order backlog for Q4 2023. I think we also have solid order backlog for the first quarter next year. But it's interesting to see how the markets will be developed from an order intake perspective in the next quarters. This is probably the only thing which makes us somewhat cautious, all the other developments are pretty positive, which is then also reflected in our guidance. We keep our sales forecast in a range of EUR 305 million to EUR 320 million. We increased our EBITDA pre guidance from EUR 35 million to EUR 40 million to a level of -- from EUR 30 million to EUR 36 million to a level of EUR 35 million to EUR 40 million. So a significant increase of the EBITDA pre guidance. Free cash flow, we still expect low single-digit negative euro million amount and a slight increase of the equity ratio towards the end of the year under the precondition that interest rates stay on a relatively stable level. As I just said, we are very positive towards the end of the year. We are somewhat cautious when we look forward in the first and second quarter. Next year, because the markets are softening at this point in time, and we see it for many industries, if you look into the news, nevertheless, we are, again, very positive with the perspective of our long-term development because we are still convinced that the sectors we are working in are all benefiting from long-term trends. So long-term growth expectations are still there, and it's now our task to drive the strategy, to drive our internationalization and digitalization efforts in order to prepare for the coming years.
This is it from my side. Thank you very much, and we are open for questions.
The first question is from Christian Sandherr with NuWays AG.
Maybe the first question would be on Dr. Hallmann what you said around the order intake that you see some more cautiousness across various industries. Can you maybe shed some additional light on this? So what industries are particularly weak? And are some other industries significantly stronger?
Thank you for your question. It's -- the industry, which worries us the most is the European chemical industry. I think the trends behind are the weak building and automotive markets, which heavily influence the chemical industry. And we saw already a softening of the chemical industry in Germany last quarter, and now we see a strong softening of the chemical industry all over the place in Europe. So this is the main effect, all the other segments, like LNG, pharmaceutical industry, but also general oil are more or less stable at this point in time.
Okay. Understood. And can you maybe give a little bit of an update on the whole nuclear topic? So it's been quite new for you guys. And if you look into the news recently, we see that Poland is basically launching quite a significant nuclear program. They want to build a large number of smaller reactors. And we all know that the French nuclear environment has to be remodeled. So is it something where you are actively, I don't know, in talks with Polish authorities? I mean, in French you're already obviously engaged with the operator? So is this something where one can expect additional order intake where nuclear becoming a quite significant part of your growth going forward?
Nuclear is definitely one of the segments I just mentioned when I think about our long-term growth expectations. We are in discussions, especially on the British side and the French side. And there is -- there are lots of projects in the pipeline. What we have to see there is it will take some time. I would expect that we can see nice orders again in like towards the end of 2024 from the British side. The French side will probably need a little bit more time. But nevertheless, we are -- on the Polish side, actually, I don't know whether we are already in discussions. Nevertheless, we are very positive, and we are not only in discussions about concrete orders, we are also in discussions about joint technology development.
Okay. Understood. And then my third question would be on your gross margin. So you have been able to pass on higher raw material prices and get to where, I'd say, comfortable stage. If the prices for your imports are coming down again, do you have to pass this on to your customers as well? Or would you be able to keep the price that you're currently set?
No. We have to -- when we went in this inflationary times, we introduced a new pricing model. And that -- so we implemented what we call material surcharges in certain product ranges. And these material surcharges in some cases had significant amounts, especially when the electronics were involved, and we had cases where we had to pay $40 for semiconductors where we paid $1 before. And that we handed over to our customers via these material surcharges. Those material surcharges we take out now. And this is also something we promised to our customers at the beginning, and therefore, it was well accepted, and now, they expect us to take it out what we do. What we don't do is we don't lower the general list prices. So overall, I would expect that the profitability level or the margin level remains.
For the like 65% gross margin-ish, is that something where you would expect us to stay going forward? Some slight upside if scale comes in, but they're not -- definitely not lower.
It very much depends also on the structure of the business. If we move into more projects, again, it might lower a little bit. If we move in the more small-scale business, it might go up, but the 65% is somewhat our target, yes.
The next question is from Sebastian Hahn with HC.
I have one question regarding the order intake as well. Because in the presentation, you wrote that the flattening of the order volume only temporarily, which means you're expecting still higher order intake than the EUR 82 million in Q3. Is that correct then? Maybe it is EUR 87 million from Q1, but...
No. No, no. We are not -- for Q4, I'm still expecting lower orders. We are not -- we will not see the 80s. I'm also not extremely optimistic for the first quarter. But I would expect that starting from the second quarter next year and especially when we look more into the future that the orders should come back.
Okay. And on what is that based? Is it basically that the chemical industry now reducing all the inventory and that should be done and they are starting to increase the capital utilization? Or what's there?
They are just not investing. And they are extremely -- they all started cost control programs. And so we see -- we don't see them spending money. And this is in a way we've never saw before -- we never saw it before, especially in the -- when we think about the pandemic, the chemical industry continued investing. And they used the shutdowns of plants for maintenance and upgrading. This is something they don't do at this point in time. So they all have significant profitability issues, and they all put cost-saving programs in place. And -- but eventually, they will come to a normal operation. And they will not continue saving money in their technical equipment.
And what's roughly the share of the chemical industry...
In Europe, it's around 30%, Germany is even bigger.
So 30% out of your European business and...
Yes. What we -- so what we -- when you look at Germany and Central regions, so our biggest regions, which make probably 2/3 of our sales globally, then in that the chemical industry is around 1/3.
Okay. And your assumption that the orders are improving next year from Q2 is not based on the recovery of chemical industry...
It's -- no, it's based on a recovery of the chemical industry, but it's also based on our internationalization strategy that we really see more orders from Americas and Asia Pacific, but it's also a recovery of the Central region and Germany.
Okay. And you said Q3 -- Q4, you're expecting lower order intake than the EUR 82 million. Can you give us an indication what that means?
No, I can't. It's very much dependent on big projects, which might come in this year or in January. It's -- honestly, the crystal ball isn't that good at this point in time. Yes, it's lots of uncertainty in the market. I still expect a good order intake. We still sit on roughly EUR 130 million of order backlog. So I'm not worried about sales in Q4 and also not starting Q1, but I can't give you really a number.
The next question is from Klaus Schlote with Solventis AG.
Good numbers. Congratulations. Yes. I was a little bit astonished regarding your forecast -- change in your forecast. If I look at EBITDA pre and we are at 32.5% after 9 months.
Yes.
And so we would add another EUR 2.5 million to EUR 7.5 million, which is roughly -- at the top, it's about half what came in, in Q3. Are there any specific reasons why you are careful regarding EBITDA pre for Q4?
If you look into our historical numbers, you see that Q3 is always our strongest quarter. That's one thing. And Q4, we see some effects. We -- and what we also see is that we will close down early in December. So December will definitely be a very soft month, and we see some flattening already in October, November. I said we still have good orders, but the short-term business, the underlying short-term business, the day-to-day business is softening, so that we see a lower EBITDA in October, November, and December. Yes, it's a little bit reflecting also the uncertainty we have in the market.
Okay. And then you mentioned the softening in the chemical industry. What about the pharmaceutical industry? Because I just heard that Merck is starting a cost-cutting program, Bayer is not doing very well for several reasons. Is that limited to really the softening to chemicals? Or is it taking broader other industries along?
At this point in time, it's the chemical industry. But we are typically late in the cycle. We are watching the pharmaceutical industry. We are watching it, but we don't see significant impact at this point in time.
Okay. Then regarding your turnover -- strong growth and turnover, is that -- can you give us an indication of what is price-driven and what is volume-driven?
In general, if I compare last year to this year, I would say 1/3 is price and 2/3 is volume.
And regarding ZAVOD GORELTEX, are there any new insights? What will you do about this company?
Yes, there are insights. Actually, you might know, we only own a 25% share. And the rest 75% was or is owned by 2 Russian families. We typically call these people oligarchs in Europe. And they come from the agricultural business, and they were the biggest landowners in Russia.
And what I -- what we got to know in the last couple of weeks was that they lost all their property and their factories in the agricultural business in Russia, and it was taken away from the state. So these guys obviously have problems with Mr. Putin.
And that creates a lot of questions for us, which we can't answer at this point in time. So we are not -- we don't know whether they will also lose the 75% of GORELTEX. Right now, they still own it.
And we don't know exactly what kind of conflict they have with the government, and we don't know what all that would mean to us. So our Managing Director is still positive that it will not influence us. But, again, my crystal ball is limited insights.
But they are still alive.
Yes. No, they are still alive. And operationally, they are doing extremely well.
I don't mean GORELTEX, but the business people -- the Russian -- the 2 Russian...
One is sitting in [indiscernible]. The other is somewhere sitting in Russia, but he's hiding himself, if I know correctly, and his son is in prison.
Okay. That doesn't sound like a comfortable situation.
Not for them, no.
But for the time being, you will do nothing about this 25%. So you're kind of wait and see who wants.
No. No, no. I wouldn't call it wait and see. We are prominently checking our options. But when you look into the regulations -- I mean if you sell -- if you want to sell something into Russia, there is a process which starts with an evaluation of the company, which is -- can only be done by authorized companies, authorized from the Russian government. On this evaluation, then you have -- you have to give a discount of 50%. And then you have to pay a fee to the state, which amounts to another 10%. So we have 3 steps driving down the value of your investment. And putting all that together, it's just not attractive at this point in time.
But for the time being, you don't have a buyer or -- for your...
For the time being, we don't have a buyer. We were in discussions with our partners, but they are -- they don't have money anymore.
Okay. And regarding dividend, is there any idea after having been so successful in '23 to pay some dividend for '23?
We do have these discussions internally. There isn't a decision yet. But we have to have in mind that we are still not enjoying, but we still have negative cash flows. But this is something what you don't -- what you typically don't want when you pay dividend.
Okay. And regarding hydrogen business, what is your comment on that business, please?
Same like always, the hydrogen boom is mainly taking place in the press, and it's also coming down there. If you look at the stock prices of some companies -- now, there are many, many open questions starting from technical questions over regulatory questions and also financing questions. I mean, if -- you cannot build a hydrogen economy at this point in time in Europe without strong state subsidies. So the whole thing will take time. We are in many, many interesting projects. We also -- we already booked one very nice project for the city of Neom. This is this artificial city being built in Saudi Arabia with a volume of close to EUR 1 million. So we are present in the ongoing development, but hydrogen will not play a role in the energy -- let's say, for an energy distribution in Europe in the next 5 years, and it will not play a significant role in our P&L in the next couple of years.
Okay. So you would -- I would guess then that you will see -- you're more -- you'll see more visibility in the nuclear business compared to hydrogen business.
Both. Both are extremely promising for the mid- and long-term development. But both of them will not drive our business in the next 2, 3 years significantly. I mean, nuclear more than hydrogen. I told you last time that we already booked roughly EUR 10 million of orders, which will be EUR 2 million, EUR 3 million. We already delivered this year. Another EUR 5 million, EUR 6 million, we will deliver next year. So this is definitely impacting us in a positive way. But then we talk about 2% of our turnover, 1.5% of our turnover. And hydrogen is in a similar range, probably. And so it will take -- both systems will take time.
I saw that the business in America is -- order intake is going up. Is there any specific reason for that?
Yes. That's this inflation reduction act. I mean, what we see -- I mean, part of the weakness in the chemical industry in Europe is driven by the fact that the chemical industry is investing in America -- in North America. Then you see strong developments also in other industry sectors, driven by this Inflation Reduction Act of the American government. And this is driving it. And therefore, we are focusing also on our internationalization strategy because there is more to gain for us.
The next question is from Ulrich Sachse with UniCredit Bank AG.
Dr. Hallmann, very impressive figures for the third quarter. Just let me take a look on the free cash flow. When do you expect the free cash flow to improve, in particular, the reduction of the working capital, which is impacting the cash flow or the free cash flow brought the last quarters?
We are right now in this discussion. To be very honest, what we did, we moved into certain agreements in order to safeguard our ability to deliver to customers in this phase after the pandemic. And we are renegotiating some of these delivery contracts right now. And depending on the outcome of that, we will see the working capital coming down sooner or later. It will definitely come down next year. I hope to bring it down from the first quarter, but we are still in preparation for that.
There are no further questions at this time.
Yes. Okay. Then, thank you very much from our side for your participation and for the good discussions, and hope to talk to you when we issue our preliminary number...
No.
No. Full year. Full year.
In April.
Full year in April. No preliminary numbers. Okay. Good. Then, thank you very much again. Bye.