Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong revenue growth in Q2 2024, leading to an upgraded short and midterm outlook.
- Sizable order backlog, with a mission to execute it profitably.
- Operational efficiency improvements, particularly in the Augsburg site.
- Increased revenue guidance to around EUR1.1 billion and adjusted EBIT guidance to EUR175 million to EUR190 million.
- Defense-related business continues to be a key source of growth, with a strong presence in military vehicles.
Negative Points
- Supply chain challenges in the US, particularly in the Muskegon plant, affecting production efficiency.
- RENK America underperformed, impacting overall profitability.
- Higher R&D expenses, which are fully P&L affected and not capitalized.
- Increased SG&A expenses, including new items like the Annual General Meeting.
- Net working capital increased back to the level it had at year-end 2023, impacting cash flow.
Q & A Highlights
Q: RENK America clearly disappointed. Could you elaborate on the problems and why you're confident that you can improve them?
A: (Susanne Wiegand, CEO) We faced significant supply chain challenges in Muskegon, leading to inefficiencies in production. We established a task force to address these issues, and we've already seen improvements, increasing from less than one transmission per day to three. We now have theoretical coverage of all required materials until the end of the year, and we are confident in our ability to continue improving.
Q: Could you explain why you've raised the guidance now and provide more details on the divisions?
A: (Christian Schulz, CFO) The strong performance in Augsburg and the improving situation in the US support our decision to raise the guidance to EUR175 million to EUR190 million. For the medium term, we see a 15% annual organic growth and an EBIT of about EUR300 million. The majority of the order backlog is in the VMS land side, with a significant portion also in the Navy side.
Q: What is the share of the aftermarket business in the VMS order intake in Q2, and do you expect this to accelerate?
A: (Christian Schulz, CFO) The aftermarket share was less than 30% of the order intake in Q2. However, aftermarket order intake as a percentage of revenue was around 40% and should remain at that level, indicating substantial further aftermarket growth.
Q: Can you provide more details on the operational improvements in Muskegon?
A: (Susanne Wiegand, CEO) We have established a task force to support the management team in Muskegon, focusing on supply chain and production planning improvements. We have increased the delivery rate to three transmissions per day and have theoretical material coverage until the end of the year. We are confident in our ability to replicate the success we had in Augsburg in Muskegon.
Q: Could you clarify the medium-term targets and the rationale behind them?
A: (Christian Schulz, CFO) The medium-term targets are set for a three to five-year horizon, with an expected 15% annual organic growth and an EBIT of about EUR300 million. This is based on our improved ability to realize output and strong growth prospects, especially in the VMS segment.
Q: What are the specific drivers for the increased guidance for the full year?
A: (Christian Schulz, CFO) The increased guidance is supported by the strong achievements in Augsburg and the improving situation in the US. We expect continued strong demand growth and operational progress across all segments.
Q: Can you provide more details on the order intake in the VMS segment and future opportunities?
A: (Susanne Wiegand, CEO) The VMS segment saw a strong order intake, including a large order from the US Armed Forces. We have many sizable business opportunities not yet included in our soft order backlog, indicating a strong pipeline for future growth.
Q: What is the outlook for the Marine and Industry (M&I) segment?
A: (Christian Schulz, CFO) The M&I segment continues to show strong revenue growth, particularly in the more profitable Navy business. We expect solid growth and good activity levels in the second half of the year, with a disciplined approach to margin quality.
Q: How do you plan to address the challenges in RENK America?
A: (Susanne Wiegand, CEO) We have a comprehensive approach to improve operational excellence in Muskegon, including optimizing material flow and test bench processes. We have adapted the management and organizational structure to support process thinking and are confident in our ability to replicate the success we had in Augsburg.
Q: What are the key priorities for RENK Group in the coming months?
A: (Susanne Wiegand, CEO) Our key priorities include stabilizing and improving output at our Augsburg plant, achieving operational excellence in Muskegon, optimizing net working capital, and maintaining strong order intake. We are confident in our ability to meet these goals and continue our strong performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
