Wacker Neuson SE

XETRA:WAC

Q1-2025 Earnings Call

[Peer Schlinkmann, executive]

Good afternoon, everybody, and welcome to the Q1 2025 earnings call of the Wacker Neuson Group. My name is Peer Schlinkmann. I am the Head of Investor Relations and Corporate Communications. Thank you for joining today on the occasion of the release of our first quarter results. As usual, we will first start with the operational and financial results of the first quarter of 2025 and then give additional insights on the recent developments as well as our outlook for 2025. Following this, we are happy to answer your questions in the Q&A session. If you are not able to follow today's call via the webcast, the presentation slides are also available for download at wackerneusongroup.com/investor-relations. Note that the entire call, including the Q&A session, will be recorded and a replay will be made available on our corporate website by the end of the day.

Now I would like to hand over to our executives, Karl Tragl and Christoph Burkhard, who will, as usual, lead you through this call.

[Christoph Burkhard, executive]

Thank you, Peer. This is Christoph Burkhard, CFO of the Wacker Neuson Group. Welcome, everybody, to our earnings call, and thank you for joining.

[Karl Tragl, executive]

Dear all, a warm welcome from my side, too, and thanks again for joining. I'm Karl Tragl, CEO of the Wacker Neuson Group. I would like to start the presentation with a brief overview of our key financials for quarter 1 2025. Just a little over 4 weeks ago, we presented our fiscal year 2024 figures. On that occasion, we gave you an impression on the start of 2025 as well as our full year guidance. As explained, for the first quarter 2025, we expected a slow business start. The low order intake in the second half of '24 still affected revenues in the beginning of 2025. Since the turn of the year, however, our order intake has shown promising signs of recovery.

Looking at the first quarter more closely, we see a further reduction of revenues quarter-over-quarter from approximately EUR 513 million in the last quarter of 2024 to roughly EUR 494 million in the first quarter of 2025. Our EBIT margin of 2.5% was comparable to last quarter. With the year-to-date book-to-bill ratio greater than 1, we expect a steady recovery of our revenue as well as EBIT margin in the course of the year. However, we are experiencing increased hesitation among U.S. customers and distributors due to higher political uncertainties, mainly triggered by the current tariff situation. This clearly separates the Americas region from the rest of the world at the moment, and we expect the slowdown in this region to continue in the coming months.

We saw a continuation of the downward trend of our net working capital in the first quarter of 2025. As a result of higher cash flow from operating activities than in the first quarter of '24, we generated a free cash flow of around EUR 19 million in Q1 2025. Christoph will explain this development later in some more detail.

Now let's take a closer look at our performance across the regions. In general, the overall revenue picture remained comparable to the previous quarter. In all regions, we still saw revenues effects of the lower demand in the second half of 2024. We expect this to change in the upcoming months as we see an increasing order intake for the group. Revenue in the European region, EMEA, which makes up 76% of our group revenue, fell by 19% to about EUR 372 million. This decline was again due to a lower demand in our key markets. Germany, France and the United Kingdom faced decreasing customer demand. Also, there were mostly negative developments across the regions, some Nordic markets recorded revenue increases.

Moving to the Americas region, which accounts for 22% of group revenue. We saw a decline of 8%, resulting in revenue of around EUR 111 million. In the Asia Pacific region, which represents 2% of our business, revenue dropped by 19% to approximately EUR 11 million. Regarding our business segments, compact equipment declined 32% year-on-year. At the same time, on the positive side, both light equipment and services grew year-on-year. Accounting for 23% of total revenue before cash discounts, light equipment increased by 4% year-on-year. Services, including rental, maintenance and repair business grew by 11% year-on-year. This way, services is comprising over 26% of our total revenue. This continues to serve as a stable growth engine for our business, and we anticipate further positive contributions.

In summary, while we saw a slow business start in the first quarter in all regions, we now anticipate a steady recovery from the second quarter of 2025 onwards. A successful Bauma trade fair provided positive stimulus, underpinning our expectations for this year. Our sales teams recognized significant order intake supporting revenues in the coming months as expected.

With this, I hand over to you, Christoph, to give some more details on our financials.

[Christoph Burkhard, executive]

Thank you, Karl. Now let's talk about our recent working capital development. And before going into the Q1 numbers, I would like to point out that when talking about the net working capital ratio, starting this quarter, we will solely focus on the ratio calculated on the basis of the last 12 months. Historically, we focused intra-year on the annualized ratio, hence, quarterly revenues x4, while at year-end, of course, always on the last 12 months view. And in order to have a better and continuous comparability of our quarterly ratio with our year-end target, we decided to implement the last 12 months view also in our quarterly reporting. And for the sake of transparency, we will show the ratios calculated on the basis of both calculation methods as displayed here on our slide. However, in my explanations, I will focus on the last 12 months view.

Now looking at the actual Q1 ratio of 32.8%, we do see an increase compared to the 31.7% in Q4 2024. Nevertheless, I interpret the Q1 number positively because, firstly, the development is slightly better than our internal plan for the first quarter. Secondly, in absolute numbers, the positive downward trend continued. We are now down to approximately EUR 700 million in total compared to EUR 709 million at year-end and EUR 918 million a year ago. And thirdly, within the working capital categories, we do see a significant increase in trade payables, signaling increasing purchasing volumes, preparing for more volume and hence, more revenues.

Now looking ahead, we will further work to gradually reduce the ratio towards our target of 30%, acknowledging that increasing sales volumes will lead to a parallel increase in receivables as well. So as a summary for Q1, the overall trend is intact. Our focus is now on keeping the right balance in our production planning for the weeks and months to come so that we are well positioned to deliver on our mid- and long-term growth path in accordance with our Strategy 2030, also in times of geopolitical uncertainty.

Now concerning our free cash flow. Also in the first quarter 2025, we continued to show a positive free cash flow, the fourth consecutive quarter. We generated EUR 19.4 million, Karl mentioned it already, mainly as the result of the improved cash flow from operating activities. Consequently, you'll see in Q1 further reduced net financial debt now amounting to EUR 298 million and a steady leverage of 1.1. Last but not least, our balance sheet remains solid and basically unchanged since the end with an equity ratio of 60%. And with that, back to you, Karl.

[Karl Tragl, executive]

Thank you, Christoph. Before diving into the outlook for 2025, let me review with you the recent Bauma trade fair. This is the world's largest fair for compact, light and mining equipment as well as building materials machinery. The 2025 edition saw an increase in visitors compared to both previous shows, the one in 2022 and the one in 2019. Some of you visited our booth at our Investor Day, which took place on April 8 as part of the trade fair. It was our pleasure to be able to give you more insights on our machines and digital products.

We also had the privilege of presenting our innovative solutions to the Mayor of Munich, Dieter Reiter, the Head of the Bavarian State Chancellery, Dr. Florian Hermann; and the Deputy Prime Minister of Bavaria, Hubert Aiwanger. To sum up the current state of our sector and the general future sentiment, Bauma 2025 showcased cautious optimism in combination with innovation-driven confidence amid geopolitical and economic challenges. Politicians and industry leaders emphasized sustainability, digitization and international collaboration as key drivers for the industry's future. Companies showed their readiness for the future demand for electric and autonomous machinery. Despite the market slowdown in 2024, Bauma 2025 underlines the sector's adaptability and focus on long-term solutions for smarter construction.

Under the claim solutions built for you, Wacker Neuson Group once again presented exciting new combustion engine as well as zero emission machines, smart digital solutions and passionate hands-on demo shows. We proved our commitment to efficiency, sustainability and customer needs. Bauma 2025 was a great success for the Wacker Neuson Group as we enjoyed the forward-looking atmosphere and optimistic general outlook for the construction industry. What was even more important, we received great customer feedback, which gives us great confidence and motivation for the rest of the year.

For our business outlook, I would like to reaffirm our 2025 guidance, which remains unchanged for all KPIs. Our commitment to Strategy 2030 with a priority on boosting efficiency to reach higher profitability is pushing us in 2025 and beyond.

Let me summarize the key messages of today's presentation. First of all, the slow start of our business in the first quarter is behind us. We now expect a gradual revenue and profitability recovery in the coming quarters. A successful Bauma trade fair provided us with positive stimulus underpinning our expectations for 2025. Strategy 2030 remains our North Star. We are fully on track with our actions.

We will closely monitor uncertainties caused by tariffs and geopolitical tensions. But at the same time, we will be ready to seize opportunities of the German special fund over the next years. Finally, our strong balance sheet will support the future growth.

Okay. Ladies and gentlemen, thank you again for your trust in our company and for listening to today's earnings call. We will be on roadshow in the upcoming weeks. We are also looking forward to our Annual General Meeting taking place on the 23rd of May in Munich. But before we jump into the Q&A session, let me send a sincere thank you to all employees of the Wacker Neuson Group who are relentlessly giving their best for our customers, our company and our shareholders. It is perfect, but a team can be. Thank you for listening. Operator, we are now ready to start the Q&A session.

[Operator]

The first question is from Stefan Augustin of Warburg Research.

[Stefan Augustin, analyst]

Actually, we are looking for a good recovery throughout the rest of the year, and you mentioned already the increased order intake. Can you give us a little bit more flavor on, let's say, scope of the book-to-bill trajectory? Will we see already in Q2 a steep recovery on the production side? How did this year's Bauma compared to the last year's Bauma, things like that?

[Karl Tragl, executive]

Okay. Thank you. Let me start to explain a little bit more about the order book. As we talked, we had a low order intake in the second half of last year. And since the beginning of this year, increasing book-to-bill ratio, which currently year-to-date is around about at 1.4. With regional differences, 1.4 definitely for Europe, a little bit lower in North America and lower than 1 in APAC, which is a smaller amount of our total business.

Now taking into account that we have a rate of, let's say, 3, 4, 5 months turning order intake into specific revenue, this steady increase of the first quarter in order intake this year will also then basically show up in an increase of revenue in quarter 1 and the following one -- sorry, in quarter 2. So the order intake from quarter 1 will steadily increase revenue in quarter 2.

As far as the Bauma is concerned, your question on the Bauma, there was an absolutely record of visitors. There was a record of the fair. If I remember correctly, it was around about 600,000 people on the fair. We had much more visitors and much more leads, as we call it in sales than the year 2019, which was the best fair ever for us, where we could increase also the customer leads, which we have taken. And we are also taking orders on the Bauma where we have to say that this is nothing -- is not all in addition. It's definitely also collected mainly for the Bauma, but also some orders which are really -- I walk to the one booth and I talk to the other booth, then I decide for Wacker Neus.

So there is positive increase, which we mentioned in our stimulus but it would not be -- it would be unfair to count everything as additional orders. So this is confirming that the positive order intake picking up in the first quarter will give us the speed for doing it now with the revenue.

[Stefan Augustin, analyst]

Okay. With respect to Bauma, is there -- let's say, you displayed a lot of, let's say, new electric products at the Bauma. When you look at what's happening, how was the reception? Is it that you had an unusual, let's say, pickup from the fare on the e products? Or is that still, let's say, we had a display now and then we look how it will go on. Is that -- is there already a special customer reaction to that?

[Karl Tragl, executive]

Okay. So first of all, as I've explained, we had a significant and impressing portfolio on electric machines, ranging from small ramers up to telehandlers and wheel loaders. So that was well received by the customers. We also had something on the booth, which was a diagnosis tool to estimate the future lifetime of a battery, which is important in our ecosystem to give a better evaluation of the future value of a used electric machine. So we not only displayed machines, but also digital solutions, helping to overcome the barriers.

And we also can see that the battery costs are slightly coming down, and therefore, the overall pricing for the electric machines is also coming down, but still more expensive than combustion engine machines. So due to the lack of subsidies and the lack of hard push of city orders or let's say, city projects requesting specific electric machines, this will definitely not turn the situation completely. It just shows the current situation of improving offering of manufacturers like us, improving ecosystems, but with the fact that still more pricing than -- more expensive than a combustion engine machine, there is a hesitation to buy, and I don't think that the Bauma will change that completely. It will definitely push us more in the front, again, of electric manufacturers, but it will not change the market demand significantly. And that was also what we felt at the Bauma.

[Stefan Augustin, analyst]

All right. And as the last one, in your report, you mentioned some, let's say, risk concerning the supply chain in the case of increasing demand for 2025. Is this rather a statement on -- do you see a risk in the supply chain itself that it breaks? Or is it a statement that demand could be so high that current capacities in the supply chain might not be able to deliver?

[Karl Tragl, executive]

I would say this is more from a general experience in the machine building industry, where at least I have been now for many, many years because now the whole supply chain has to ramp up again. And my experience shows that then there is always a weak part of the supply chain, which gets into trouble. I wouldn't say I don't see any structural restrictions or anything like that. But there could be easily, again, geopolitical issues like transportation, Suez channel and that stuff what we had in the past or the one or the other supplier getting into trouble by ramping up. So it's a more experience-based general comment, I would say.

[Operator]

And we are moving on to the next question. It is from Lukas Spang of Tigris Capital.

[Lukas Spang, analyst]

Just one question following on the question or your answer to Mr. Augustin. So the mentioned book-to-bill ratio of 1.4 year-to-date seems to be very positive. But to get a better feeling of this number, was that more or less steady increase in the first month? Or was there also some volatility?

[Karl Tragl, executive]

I mean there's always volatility, but I would say it's more a steady increase because it was continuously month by month. It's fluctuating definitely, but we didn't have a bad month so far. And also, we saw a positive spike after Bauma, but then a small slowdown in the week, but then it's picking up again. So I would say this for me looks pretty stable at the moment. And that's the reason why we are absolutely convinced of the picking up of revenue as well.

[Operator]

We are moving on to the next question. The next question is from Jean-Marc Mueller of JMS Invest AG.

[Jean-Marc Mueller, analyst]

Just 2. The way you phrase it, it seems that the gradual improvement will be like Q2 will be better than Q1 and Q3 will be better than Q2 and so on and so forth. Now I believe the usual seasonality is though that Q2 is the strongest quarter and then Q3 and Q4 tends to be weaker than Q2. Can you point us a little bit how we should expect the quarters to evolve over the year?

[Christoph Burkhard, executive]

Yes. Thank you for your question. This is Christoph Burkhard. I mean your point with the usual seasonality, of course, carries some general truth. However, my remark would be when now looking at the step that we are making now from a very slow Q1 into Q2 and looking at the dynamics that Karl has explained, particularly towards the end of 2024, I would say we are not in the usual situation. We have -- and that also made the year planning more -- let's say, more complex than before. I think we look at a pattern that's a bit more unusual in a way that we are now looking at a fairly steep increase. And so we are coming from a low level now in Q1, as you can see. Therefore, it might be not as following exactly the same pattern in a sense that we have Q2 being the strongest and then somehow leveling out. It could well be more a gradual development, but that's very hard now to exactly forecast. I just want a little bit to differentiate towards your comment with the general pattern of seasonality.

[Jean-Marc Mueller, analyst]

Yes. No, that's helpful. And also, sometimes it helps if one looks at absolute numbers. And I mean, when I look at your guidance and I take the lower end of the guidance, the lower end of the guidance would point to 6.5% EBIT margin on EUR 2.1 billion of sales. That would be, let's say, rounded number, EUR 140 million of EBIT. So that's EUR 15 million more than you did last year. But in Q1, we're already missing EUR 25 million. So you have to -- in the next 3 quarters, you have to make up EUR 40 million of EBIT to reach the lowest end of your guidance. And I would like to know, I mean, will this all come in the second half? Because I mean, Q2 EBIT last year was still pretty strong. I mean it was EUR 47 million, a margin of close to 8%. I mean, should I expect Q2 EBIT to still be weaker than the year before, but then I should then see a substantial improvement of the absolute EBIT number in Q3 and Q4? Or how do you see the distribution there?

[Christoph Burkhard, executive]

Yes, you are getting now quite into detail yes.

[Jean-Marc Mueller, analyst]

I understand. I understand. But it's more a bit to better understand.

[Christoph Burkhard, executive]

I can fully understand that. And therefore, very openly want to share with you also our thinking. And maybe it helps you a bit if I somehow disclose also the challenge that we have been having while doing our planning because I think on a positive note -- to start with that, on a positive note, and you can sense that we believe that now the dynamics are really starting in not just very short term, but on a more stable and continuous base. I think the challenge for us and also the challenge in getting the answer to your question perfectly right will be timing. This year will all about timing and speed of recovery because as you rightly say, looking at our Q1, we have to catch up fast in certain aspects to reach certain absolute numbers. And I'm simply -- I think it would be not prudent now if I pretend knowing now every monthly increase.

But it's going to be -- I think we are fairly positive about the upswing now. It's all going to be about the timing throughout April, May. And why I'm not already saying Q2 will be our strongest quarter is that we are really starting slow. So it could well be that we have a more gradual development over the next 3 months to come and then basically end up on a higher plateau. But that's, I think, all we can say because then it gets too difficult.

[Jean-Marc Mueller, analyst]

The cost savings, I mean, that has already been felt now in Q1 as well? Or is this also something which will be more like second half weighted or...

[Christoph Burkhard, executive]

No, it has already started. It has already started. But the impact, of course, will grow as the volume will grow certainly because we keep out the basis -- we keep it stable in absolute terms, obviously.

[Operator]

At the moment, there are no more questions. Let's wait a couple more moments. All right. There seems to be no more questions in coming. So with that, I'm closing the Q&A session and hand the floor back over to the host.

[Peer Schlinkmann, executive]

Ladies and gentlemen, as we can see, there are no further questions in line. This brings us to the end of our conference call. As usual, if you have any further questions, please do not hesitate to contact me or the entire Investor Relations team via phone or e-mail. If you would like to meet in person, please let us know or check our website and financial calendar for all relevant roadshow days in the coming months. Thank you again for joining our call, and we wish all of you a wonderful start of a summer season. Have a great day.

[Karl Tragl, executive]

Thank you, everybody. Have a good day.

[Christoph Burkhard, executive]

Thank you.