Wacker Neuson SE: Covid-19 pandemic continues to have a significant impact in Q3

Group expects to achieve Strategy 2022 goals one to two years later than planned.

Leading light and compact equipment manufacturer the Wacker Neuson Group continued to clearly feel the effects of the Covid-19 pandemic in the third quarter of 2020.

The Group reported revenue of EUR 390.8 million, which is a decrease of 16.5 percent relative to the previous year (Q3/19: EUR 468.2 million). Revenue for the first nine months of the year amounted to EUR 1,187.5 million, which is a drop of 16.4 percent (9M/19: EUR 1,420.8 million). “We again experienced a significant decline in revenue in the third quarter related to the coronavirus pandemic, albeit less pronounced than in the second quarter. However, we are also seeing positive changes in our industry that have been triggered or accelerated by the shift in circumstances. Through the crisis, our customers have become much more open to the possibilities of digitalization and electromobility in particular,” explains Martin Lehner, CEO of the Wacker Neuson Group. 

Q3 revenue in Europe – the largest region for the Wacker Neuson Group – was 8.2 percent below the prior-year figure at EUR 310.0 million (Q3/19: EUR 337.6 million). Once again, the DACH-region (Germany, Austria and Switzerland) had a stabilizing effect here, with revenue from the Wacker Neuson brand remaining at the same level as the previous year. Revenue generated by selling rental equipment from the Group’s own fleet increased significantly here, giving the company a highly flexible channel to meet individual customer requests. Whereas many countries outside of Central Europe reported double-digit downturns in revenue, the UK improved its performance markedly. This was primarily fueled by continued strong demand for Dual View dumpers, which more than compensated for the restrained investment behavior among major rental chains. Revenue generated by the Group’s Weidemann- and Kramer-branded equipment for the agricultural sector declined by a total of 12.2 percent to EUR 63.9 million (Q3/19: EUR 72.8 million). 

Revenue in the Americas, which continues to be hit hard by the Covid-19 pandemic, decreased 43.1 percent in Q3 (Q3/20: EUR 65.9 million; Q3/19: EUR 115.9 million). Adjusted for currency effects, this corresponds to a drop of 38.8 percent. Willingness to invest remained extremely low among dealers, key accounts and rental chains in the region. Although the US production plant had remained largely closed since April, the first production lines started to gradually ramp up towards the end of the third quarter. 

In the third quarter, Wacker Neuson experienced slight growth in the Asia-Pacific region for the first time since the start of the year. The Group reported a significant double-digit revenue upturn in China as well as gains in Australia despite the challenging conditions there. In contrast, revenue in Southeast Asia halved due to the severe impact of the coronavirus crisis. Revenue for Asia-Pacific as a whole amounted to EUR 14.9 million (Q3/19: EUR 14.7 million).

Profit before interest and tax (EBIT) for the third quarter amounted to EUR 22.8 million (Q3/19: EUR 41.2 million). The EBIT margin settled at 5.8 percent (Q3/19: 8.8 percent). Profit was primarily impacted here by the sharp downturn in sales volumes, which, in conjunction with the further reduction of inventory, resulted in much lower capacity utilization at production plants than in the previous year. Bad debt allowances in the amount of EUR 7.5 million also had a negative impact here. In contrast, the Group benefited from a lower cost base relative to the previous year as well as from growth in the services segment, which had a positive impact on the product mix. The Group continued to utilize various short-time work models in the third quarter, albeit to a lesser extent than in the second quarter. 

Viewed over the first nine months of the year, EBIT amounted to EUR 73.2 million, which corresponds to a margin of 6.2 percent (9M/19: EUR 127.4 million; 9.0 percent). This includes a goodwill impairment of around EUR 9 million attributed to the US subgroup, which was reported in the second quarter. 

The Wacker Neuson Group continued to reduce net working capital in the third quarter. Inventory downsizing had the biggest impact here as the Group was able to further reduce levels despite the decline in sales volumes. As such, inventory was already significantly below the year-end goal of EUR 500 million by September 30 (inventory levels at September 30, 2020: EUR 475.8 million). Reflecting declining sales volumes, trade receivables were also significantly lower than figures for the previous quarters and the prior year. Net working capital amounted to EUR 636.3 million. This is a reduction of 14.4 percent relative to the close of Q2/20 and 29.2 percent relative to the prior-year period (June 30, 2020: EUR 743.0 million; September 30, 2019: EUR 898.8 million).

Free cash flow for the third quarter amounted to EUR 86.5 million. In the previous year, a sharp rise in net working capital resulted in negative free cash flow both for Q3 and for the nine-month period (Q3/19: EUR -15.5 million; 9M/19: EUR -200.0 million). Free cash flow for the first nine months of 2020 amounted to EUR 179.4 million. As a result, net financial debt declined markedly again, amounting to EUR 276.1 million at the close of the third quarter (September 30, 2019: EUR 513.1 million). Gearing was reported at 22.2 percent (September 30, 2019: 42.2 percent).

Infection rates are on the rise again, leading to a tightening of government restrictions. As it is impossible to reliably predict the effects that these measures will have on public life, general economic activity and the business development of the Wacker Neuson Group, it is currently not possible to quantify the outlook published in August. According to that outlook, the Executive Board expects revenue and the EBIT margin for the full year 2020 to be considerably lower than the previous year (revenue 2019: EUR 1,901.1 million; EBIT margin 2019: 8.1 percent). Furthermore, the Executive Board now expects net working capital to decrease further by the close of the year, albeit at a slower pace than in the previous months (previously: net working capital was expected to be significantly lower than the prior-year figure of EUR 811.7 million). Investments for the year as a whole are expected to remain unchanged at around EUR 80 million.

After reporting double-digit growth rates for fiscal 2017, 2018 and 2019, the Wacker Neuson Group has clearly deviated from its growth path in 2020. In light of current infection rates, the Executive Board expects the coronavirus pandemic to continue to have a major impact into fiscal 2021. In light of this, the Group expects to achieve its medium-term goals set out in March 2018 one to two years later than planned. In its Strategy 2022, the Group aims to achieve revenue in excess of EUR 2 billion and an EBIT margin of more than 11 percent. It also plans to gradually bring net working capital down to below 30 percent of revenue.

“We have worked hard on consistently implementing our Strategy 2022 in recent years to ensure that our Group is focused 100 percent on our customers’ needs. We have already made substantial progress in each of the initiative’s three strategic areas of “focus”, “acceleration” and “excellence”, and are today much more efficient, innovative and – above all – closer to our customers than we were at the start of 2018,” adds Lehner. “Together with our colleagues, we will remain committed to our current path. The long-term trend towards compact equipment in the construction and agricultural sectors is unchanged and offers major opportunities for our Group. Eco-friendly solutions and alternative drives are becoming increasingly important to our customers. As an innovation driver, we believe that we are ideally positioned to actively shape the key trends in our industries and create long-term value for our customers as well as our shareholders,” continues Lehner. “The goals that we set out for the Group in 2018 remain our benchmark. Based on the information currently available, however, we no longer expect to achieve all of these by fiscal 2022.”