Wacker Neuson SE — Interim / Quarterly Report 2018

Nov 19, 2018

Wacker Neuson Group Quarterly report Q3/2018

November 8, 2018, unaudited

Foreword

Wilfried Trepels (CFO) Martin Lehner (CEO) Alexander Greschner (CSO)

Highlights Q3/2018

Revenue +10% on previous year

• Growth in all regions and business segments
• Revenue from compact equipment for the agricultural sector +21% on previous year

Profitability slightly below prior-year level

Limited material availability and plant restructuring measures in the US and Asia dampened gross profit (margin: 28.2%, -1.3PP on previous year) and EBIT (margin: 9.9% ,-0.7PP on previous year)

Revenue and earnings guidance for 2018 confirmed

Dear Ladies and Gentlemen,

In the third quarter of 2018, the Wacker Neuson Group continued to build on its success from the first half of the year. Strong demand in our core markets and high levels of acceptance for our products fueled a 10-percent rise in revenue.

Bottlenecks in our global supply chain continued to have a dampening effect. Limited material availability significantly impacted production flows in our production plants and we are working with our suppliers on a daily basis to improve the situation.

Guided by our Strategy 2022, we are well on the way to making the Group a much more streamlined and agile organization. Recent key initiatives here included the closure of our US production plant in Michigan and our plant in the Philippines. Shutting down these sites and integrating the production lines into existing facilities – a process which is still ongoing – has had an additional impact on productivity. However, focusing on eight production plants instead of ten will help us reduce complexity and achieve sustainable profitability gains in the medium term.

Our order books are well filled and the most important target markets for our Group continue to develop positively. We have confirmed the revenue and earnings guidance for full-year 2018 that we published back in March.

Best regards,

The Executive Board team of Wacker Neuson SE

Q3/18
Revenue yoy	EBIT yoy	Adj. EBIT yoy
+10%	+3%	-4%
(€ 416 m)	(margin: 9.9%)	(margin: 9.9%)
Op. CF	FCF	EPS
€ 10 m	€ -3 m	€ 0.39
(Q3/17: € 61 m)	(Q3/17: € 51 m)	(Q3/17: € 0.41)

9M/18
Revenue yoy	EBIT yoy	Adj. EBIT yoy
+9%	+18%	+11%
(€ 1,241 m)	(margin: 9.6%)	(margin: 9.6%)
Op. CF	FCF	EPS
€ -26 m	€ 9 m	€ 1.73
(9M/17: € 75 m)	(9M/17: € 53 m)	(9M/17: € 1.01)

September 30, 2018
NWC1 ratio: 38.6% (+1.1 PP yoy)	DIO2 : 152 days (+2 days yoy)	Equity ratio: 65.6% (-1.2 PP yoy)

Q3/18: Revenue continues to grow

Income statement (condensed)

€ m	Q3/18	Q3/17	9M/18	9M/17
Revenue	415.8	378.7	1,240.9	1,142.4
Gross profit	117.4	111.9	350.6	326.3
as a % of revenue	28.2%	29.5%	28.3%	28.6%
Op. costs incl. other income/expenses	-76.3	-71.9	-231.3	-225.3
as a % of revenue	-18.4%	-19.0%	-18.6%	-19.7%
EBIT	41.1	40.0	119.3	101.0
as a % of revenue	9.9%	10.6%	9.6%	8.8%
Adj. EBIT1	41.1	42.6	119.3	107.6
as a % of revenue	9.9%	11.2%	9.6%	9.4%
Profit for the period	27.1	28.3	121.2	71.0
EPS (in €)	0.39	0.41	1.73	1.01

Q3/18: Comments

Revenue +9.8% yoy (adj. for FX effects: +10.4%)

• Continued high demand in core markets of Europe and North America
• Limited material availability had a negative impact

Gross profit +4.9% yoy (gross profit margin -1.3 PP)

• Limited material availability impacted productivity at production plants
• Plant closures in the US and Philippines and the associated relocation of production lines dampened productivity further

EBIT +2.8% yoy (EBIT margin: -0.7 PP)

• Operating costs increased by 6.1%; their share of revenue decreased by 0.6 PP
• A 9.1% rise in selling expenses caused by higher business volume and increased personnel expenses had a negative impact

Earnings per share -4.9% yoy

• Financial result below the previous year at € -2.6 m: Negative FX effects (€ -2.4 m yoy), in particular due to the devaluation of currencies in several emerging economies, slight increase in interest income (€ +0.2 m yoy)
• Tax rate increased slightly to 29.6% (Q3/17: 28.5%)

415.8 11.1 97.7 307.0 Total Q3/18 Asia-Pacific Americas Europe Q3/18: Growth in all regions 74% 23% 3% 100% +10% +11% +10% +10% share yoy 47.2 -3.6 -1.3 41.1 EBIT¹ Revenue [€ m]

Q3/18: Rapid growth in the compact equipment segment

Q3/18: Comments

Revenue Europe +9.5% yoy (adj. for FX effects: +10.3%)

• Strong momentum in particular in England (marked growth with excavators and dumpers) as well as in France, Poland and Austria; recovery momentum continued in Southern Europe
• Revenue from compact equipment for the agricultural sector +21% on previous year, signing of new John Deere dealers

Revenue Americas +10.6% yoy (adj. for FX effects: +10.1%)

• Strong growth in worksite technology (esp. generators and light towers)
• Skid steer loaders proved to be a key product and sales driver for other compact equipment
• Rental chains show high level of investment activity
• Downturn in business in South America due to political uncertainties

Revenue Asia-Pacific +9.9% yoy (adj. for FX effects: +14.9%)

• Positive development in particular with excavators in China
• Production at new plant in Pinghu (near Shanghai) started according to plan

Gearing¹ further reduced yoy

Stable equity ratio

Net financial debt/EBITDA² at low level

Comments

• At 16%, gearing¹ remains at a conservative level
• Net financial debt/EBITDA remains at a low rate
• Healthy financing structure provides framework for winning market shares and driving further profitable growth

Significant negative impact on free cash flow

Net working capital ratio 1 PP above prior-year level

Days inventory outstanding (DIO) slightly higher at 152 days

9M/18: Comments

• At € -25.8 m, cash flow from operating activities after nine months is negative (9M/17: € 74.8 m); causes for this are:
• Increased net working capital (€ -100.0 m; 9M/17: € -26.6 m):
• Increased number of unfinished machines due to delivery delays caused by bottlenecks in the supply chain, stocking up on pre-buy engines, more conservative inventory strategy for raw materials and supplies
• Increase in trade receivables due to higher business volume and strong revenue in September
• Increased investments in the Group's flexible rental business, expansion of the dealer network in the US and the resulting rise in financing solutions
• Free cash flow¹ at € 8.8 m after nine months (9M/17: € 52.7 m)

1

Strategy 2022 – Progress in Q3/18

CUSTOMER CENTRICITY

+ Expansion of dealer network in China

ACCELERATION

• Streamlining the internal value chain +
• Integration of European logistics function into the European light equipment production plant complete
• Closure of US logistics company and transfer of its logistics function to the US sales company in preparation for Q1/19
• + Reorganization of procurement completed

FOCUS

• OEM partnership with John Deere covering mini and compact
• EXCELLENCE
• + excavators concluded
• + Closure and sale of plant in Norton Shores, MI, US

Dual view dumpers production ramps up => + UK market launch in Q4

Wacker Neuson is a founding partner of the Construction Equipment Forum, which aims to connect companies in the global value chain

⁺

Outlook for 2018

Revenue and earnings guidance for 2018 confirmed

Business index for the ag sector continues its downward trend

Comments

• Business index (CECE) for the construction industry picks up again in October after four months in decline
• Expectations in the agricultural sector have cooled significantly according to CEMA
• Order intake for compact equipment remains at a high level
• Revenue and earnings guidance for full-year 2018 confirmed; net working capital as a percentage of revenues expected to be slightly higher than in the previous year
• Continued risk of delayed deliveries due to bottlenecks in the supply chain

Wacker Neuson SE, quarterly report Q3/2018 (unaudited), November 8, 2018

Consolidated Financial Statements

(unaudited)

Consolidated Income Statement

IN € MILLION

	Q3/18	Q3/17	9M/18	9M/17
Revenue	415.8	378.7	1,240.9	1,142.4
Cost of sales	-298.4	-266.8	-890.3	-816.1
Gross profit	117.4	111.9	350.6	326.3
Sales and service expenses	-52.6	-48.2	-158.8	-148.6
Research and development expenses	-7.5	-8.0	-26.2	-26.8
General administrative expenses	-17.8	-17.6	-55.5	-56.0
Other income	2.0	2.5	10.0	7.5
Other expenses	-0.4	-0.6	-0.8	-1.4
Profit before interest and tax (EBIT)	41.1	40.0	119.3	101.0
Income from the sale of a real-estate company	–	–	54.8	–
Financial income	1.9	0.9	7.4	2.1
Financial expenses	-4.5	-1.3	-15.3	-6.0
Profit before tax (EBT)	38.5	39.6	166.2	97.1
Taxes on income	-11.4	-11.3	-45.0	-26.1
Profit for the period	27.1	28.3	121.2	71.0
Of which are attributable to:
Shareholders in the parent company	27.1	28.8	121.2	71.0
Minority interests	–	-0.5	–	–
	27.1	28.3	121.2	71.0
Earnings per share in € (diluted and undiluted)	0.39	0.41	1.73	1.01

In H1/17, currency effects resulting from the valuation of a net investment in a foreign affiliate were recognized in the financial result and not under other income. This has been corrected (for further information on this, refer to the notes to the half-year report 2018). In conjunction with this, financial income and expenses for Q3/17 were also adjusted.

¹¹ Wacker Neuson SE, quarterly report Q3/2018 (unaudited), November 8, 2018

IN € MILLION

	Sept. 30, 2018	Dec. 31, 2017	Sept. 30, 2017		Sept. 30, 2018	Dec. 31, 2017	Sept. 30, 2017
Assets				Equity and liabilities
Property, plant and equipment	292.3	292.0	296.6	Subscribed capital	70.1	70.1	70.1
Property held as financial investment	26.0	26.8	27.0	Other reserves	588.5	582.3	586.3
Goodwill	237.7	237.4	237.5	Retained earnings	541.5	462.4	446.0
Intangible assets	138.1	125.6	124.4	Equity attributable to shareholders in the parent company	1,200.1	1,114.8	1,102.4
Deferred tax assets	33.5	40.5	41.5	Minority interests	–	–	–
Other non-current financial assets	52.4	29.9	28.4	Total equity	1,200.1	1,114.8	1,102.4
Other non-current non-financial assets	12.9	4.9	4.6	Long-term financial borrowings	211.4	155.0	154.9
Total non-current assets	792.9	757.1	760.0	Deferred tax liabilities	31.0	31.6	32.0
				Long-term provisions	50.7	54.7	52.6
Rental equipment	151.7	119.5	124.9	Total non-current liabilities	293.1	241.3	239.5
Inventories	495.9	431.4	439.3	Trade payables	158.8	128.0	120.4
Trade receivables	304.3	235.1	248.7	Short-term borrowings from banks	35.2	20.3	78.0
Tax offsets	1.6	6.5	7.7	Current portion of long-term borrowings	–	–	–
Other current financial assets	7.1	8.3	6.9	Short-term provisions	16.7	16.9	18.6
Other current non-financial assets	21.8	16.6	16.7	Tax liabilities	2.8	1.0	0.4
Cash and cash equivalents	53.5	27.3	38.2	Other short-term financial liabilities	43.0	32.7	26.8
Non-current assets held for sale	–	14.1	6.9	Other short-term non-financial liabilities	79.1	60.9	63.2
Total current assets	1,035.9	858.8	889.3	Total current liabilities	335.6	259.8	307.4
Total assets	1,828.8	1,615.9	1,649.3	Total liabilities	1,828.8	1,615.9	1,649.3

As of the 2017 annual financial statements, rental equipment is reported under "Current assets" (previously reported under "Property, plant and equipment"). Prior-year values have been adjusted accordingly.

IN € MILLION

	Q3/18	Q3/17	9M/18	9M/17
EBT	38.5	39.6	166.2	97.1
Adjustments to reconcile profit before tax with gross cash flows:
Depreciation and amortization of non-current assets	10.2	9.9	29.9	29.6
Unrealized foreign exchange gains/losses	-1.9	4.0	-0.2	13.6
Financial result Gains from the sale of intangible assets and	2.6	0.4	7.9	3.9
property, plant and equipment	–	0.5	-3.4	-0.9
Income from the sale of a real-estate company	–	–	-54.8	–
Changes in rental equipment, net	-6.2	1.0	-30.5	-20.5
Changes in misc. assets	-14.1	-2.7	-34.6	-17.3
Changes in provisions	-0.4	1.5	-1.7	3.5
Changes in misc. liabilities	5.7	2.8	17.9	12.5
Gross cash flow	34.4	57.0	96.7	121.5
Changes in inventories	-35.7	-17.7	-62.4	-16.7
Changes in trade receivables	16.4	21.0	-67.4	-44.6
Changes in trade payables	1.1	7.1	29.8	34.7
Changes in net working capital	-18.2	10.4	-100.0	-26.6
Cash flow from operating activities before income tax paid	16.2	67.4	-3.3	94.9
Income tax paid	-6.7	-6.8	-22.5	-20.1
Cash flow from operating activities	9.5	60.6	-25.8	74.8

	Q3/18	Q3/17	9M/18	9M/17
Cash flow from operating activities	9.5	60.6	-25.8	74.8
Purchase of property, plant and equipment	-8.5	-5.5	-23.7	-16.2
Purchase of intangible assets Proceeds from the sale of property, plant and equipment,	-9.4	-4.4	-21.5	-11.6
intangible assets and assets held for sale	5.7	0.3	19.8	5.7
Proceeds from the sale of a real-estate company	–	–	60.0	–
Cash flow from investment activities	-12.2	-9.6	34.6	-22.1
Free cash flow	-2.7	51.0	8.8	52.7
Dividends	–	–	-42.1	-35.1
Cash receipts from short-term borrowings	–	3.2	–	68.4
Repayments from short-term borrowings	-1.5	-41.0	-16.6	-182.9
Cash receipts from long-term borrowings	–	–	81.4	124.9
Repayments from long-term borrowings	–	–	–	–
Interest paid	-2.0	-1.2	-7.1	-8.0
Interest received	1.0	0.6	2.3	1.8
Cash flow from financial activities	-2.5	-38.4	17.9	-30.9
Change in cash and cash equivalents	-5.2	12.6	26.7	21.8
Effect of exchange rates on cash and cash equivalents	-0.2	-0.4	-0.5	-1.2
Change in cash and cash equivalents	-5.4	12.2	26.2	20.6
Cash and cash equivalents at the beginning of the period	58.9	26.0	27.3	17.6
Cash and cash equivalents at the end of period	53.5	38.2	53.5	38.2

Some items in the consolidated cash flow statement have been adapted compared with the previous year. For further information on this, refer to pages 18 and 22 in the 2018 half-year report.

Geographical segments

IN € MILLION
Q3		Europe	Americas		Asia-Pacific			Consolidation	Group
	Q3/18	Q3/17	Q3/18	Q3/17	Q3/18	Q3/17	Q3/18	Q3/17	Q3/18	Q3/17
Total revenue	522.8	465.5	224.5	206.8	15.8	13.9			763.1	686.2
Revenue third party	307.0	280.3	97.7	88.3	11.1	10.1			415.8	378.7
EBIT1	47.2	40.0	-3.6	-0.1	-1.3	-3.2	-1.2	3.3	41.1	40.0
EBIT margin2 (as a %)	15.4	14.3	-3.7	-0.1	-11.7	-31.7			9.9	10.6

IN € MILLION

9M	Europe			Americas	Asia-Pacific			Consolidation	Group
	9M/18	9M/17	9M/18	9M/17	9M/18	9M/17	9M/18	9M/17	9M/18	9M/17
Total revenue	1,628.3	1,457.2	671.9	649.7	61.6	42.1			2,361.8	2,149.0
Revenue third party	906.2	836.0	299.5	273.1	35.2	33.3			1,240.9	1,142.4
EBIT1	133.9	111.0	-1.6	1.5	-3.5	-6.1	-9.5	-5.4	119.3	101.0
EBIT margin2 (as a %)	14.8	13.3	-0.5	0.5	-9.9	-18.3			9.6	8.8

Business segments

IN € MILLION

	Q3/18	Q3/17	9M/18	9M/17
Segment revenue third party
Light equipment	108.4	102.5	338.5	326.0
Compact equipment	223.8	196.4	673.8	601.0
Services	91.8	86.7	251.4	234.3
	424.0	385.6	1,263.7	1,161.3
Less cash discounts	-8.2	-6.9	-22.8	-18.9
Total	415.8	378.7	1,240.9	1,142.4

Revenue in the Services segment includes period-specific revenue from flexible rental solutions for equipment and accessories. The average rental period is typically short term, averaging approximately 14 days.

Wacker Neuson SE, quarterly report Q3/2018 (unaudited), November 8, 2018 ¹ Before consolidation.

November 8, 2018	Publication of nine-month report 2018
November 12, 2018	Roadshow, Frankfurt
November 15, 2018	HSBC Luxembourg Day, Luxembourg
November 16, 2018	Roadshow, Cologne/Düsseldorf
December 4, 2018	Berenberg European Corporate Conference, Pennyhill (UK)
December 6, 2018	Family Office Capital Day, Vienna
January 10/11, 2019	ODDO BHF Forum, Lyon
January 22, 2019	Kepler Cheuvreux German Corporate Conference, Frankfurt
March 14, 2019	Publication of the 2018 Annual Report

Disclaimer

This report contains forward-looking statements which are based on current estimates and assumptions made by corporate management at Wacker Neuson SE. Forward-looking statements are characterized by the use of words such as expect, intend, plan, predict, assume, believe, estimate, anticipate and similar formulations. Such statements are not to be understood as in any way guaranteeing that those expectations will turn out to be accurate. Future performance and the results actually achieved by Wacker Neuson SE and its affiliated companies depend on a number of risks and uncertainties and may therefore differ materially from forward-looking statements. Many of these factors are outside the Company's control and cannot be accurately estimated in advance, such as the future economic environment and the actions of competitors and market players. The Company neither plans nor undertakes to update any forward-looking statements.

All rights reserved. Valid November 2018. Wacker Neuson SE accepts no liability for the accuracy and completeness of information provided in this brochure. Reprint only with the written approval of Wacker Neuson SE in Munich, Germany. The German version shall govern in all instances.

Contact

Wacker Neuson SE IR Contact: +49 - (0)89 - 354 02 - 427 ir@wackerneuson.com www.wackerneusongroup.com