Earnings call transcript: Schroder British Opportunities Q1 2025 sees strategic shifts

Schroder British Opportunities Trust (SBO) has reported a strategic quarter marked by declining sales and a focus on diversification. The company saw its total sales drop by 3% to €425.6 million compared to the previous year. Despite these challenges, SBO is actively investing in future growth areas such as 3D metal printing and carbon capture technologies. The stock price moved down by 1.26% to 67.5, with InvestingPro data showing the stock trading near its 52-week low of $0.82 and an RSI indicating oversold territory. The company’s market capitalization stands at $61.66 million, reflecting cautious investor sentiment in a volatile market environment.

Key Takeaways

• Total (EPA:TTEF) sales decreased by 3% compared to the previous year.
• Strategic investments in 3D metal printing and carbon capture.
• Stock price fell by 1.26% following the earnings report.
• Oil price decline and economic slowdowns impacting market conditions.

Company Performance

Schroder British Opportunities Trust experienced a challenging quarter with a 3% decline in total sales, reflecting broader market pressures. The company is maintaining a strong position in oil and gas services while diversifying into new markets such as 3D metal printing. Expansion efforts in the Middle East and Latin America are underway as SBO reduces its exposure to the U.S. market.

Financial Highlights

• Total sales: €425.6 million, down 3% year-over-year.
• EBITDA: €75.8 million, representing a 17.8% margin.
• EBIT: €51.8 million, with a 12.2% margin.
• Free Cash Flow: €42.5 million.
• Net debt reduced, with an equity ratio slightly below 60%.

Outlook & Guidance

Schroder British Opportunities Trust is optimistic about the long-term outlook for the energy industry, targeting double-digit EBIT margins in its Oilfield Equipment division. The company remains cautious about market volatility and geopolitical uncertainties, continuing its regional expansion strategy.

Executive Commentary

Kempel MacPherson, COO, emphasized the company’s commitment to diversification, stating, "We are doubling and tripling down on diversification strategies." He also noted, "The long-term fundamentals for the oilfield service industry remain solid," reflecting confidence in the company’s strategic direction.

Risks and Challenges

• Potential oversupply in the oil market could pressure prices.
• Economic slowdowns in China, Europe, and the USA may impact demand.
• Workforce reductions in some segments could affect operational efficiency.
• Foreign exchange fluctuations could impact earnings.
• Inventory buildup in the AMS (VIE:AMS2) segment presents challenges.

Schroder British Opportunities Trust is navigating a complex market environment with strategic investments and a focus on diversification, positioning itself for future growth despite current challenges.

Full transcript - Schroder British Opportunities Trus (SBO) Q3 2024:

Claus Mada, Executive Board Representative, SVO: Ladies and gentlemen, good morning. This is Claus Mada. I’m welcoming you to our Q3 Earnings Call in the name of the Executive, Ford (NYSE:F). And as usual, I’m doing that call together with Kemper (NYSE:KMPR) Mac Berson, our Chief Operating Officer. Today, we will talk about the business highlights, the financial highlights of the year to date figures but also of the Q3 figures, followed by explanations about the market environment done by Kempel and followed by the outlook.

I just heard that there was no tone at the beginning, so let me do it again. Welcome in the name of the Executive Board to Cielo Blackman Q3 earnings call that I, as usually, do together with Kendall MacPherson, Chief Operating Officer of the company. And today, we will talk about the year to date figures, also the Q3 figures, business highlights, financial highlights, followed by discussing the market environment done by Kempel and then also the outlook. Let’s skip the disclaimer and get immediately to the business and financial highlights for the year to date figures. We delivered solid results, not outstanding results, but solid results and a higher cash flow in a challenging market environment that we are going to discuss in more detail.

The sales remains at a high level of 425.6%, which is about 3% below the previous year, driven by the Oilfield Equipment division on the back of the Brexit acquisition, but also based on a strong performance in the third quarter. AMS division having excellent results in the first half of the year. The sales decreased on a year to date basis compared to the previous year. You all know about the weakness of The U. S.

Market, which had an impact on our sales performance. But when talking on a group level, we were almost in a position to compensate that by increasing sales in The Middle East, in Central America, in Latin America, coming to the level of 400 and about $25,000,000 The bookings in the third quarter have been 124,000,000 and 4% below the second quarter but slightly above the first quarter. The group EBIT with $51,800,000 is well below the previous year. The two main drivers were the first half year performance of Oilfield Equipment and the Q3 performance of AMS after a strong first half of the year, which was impacted by a moderation of our customer demand as well as quite significant foreign exchange losses of almost $3,000,000 in the third quarter of AMS. On the other hand, what we promised during the half year figures, oilfield equipment is returning clearly back to profitability.

We will also discuss it in more detail, and we had quite a strong year in the a strong quarter in the third quarter, even a better one than not only to the first and to the second but also to the third quarter of the previous year. The good news on the year to date figures is on cash flow and balance sheet. Free cash flow increased to more than $42,000,000 which is significantly above the previous two years as a result of lower working capital. The cash increased significantly compared to the half year figures, which is driven by successful completion of a financing round that ended in October, but the majority was done in September. And on the back of a strong cash flow generation and net debt further decreased and the gearing further improved.

The equity ratio is slightly below the 60%. We will discuss that shortly, but on a very solid and high level. Let me talk about some strategic highlights that we are also going to discuss on the next slide. The regional expansion, which we put on our shoulder at the beginning of the year as a result of the weakness in The U. S.

Market to compensate that with doing business, especially of oilfield equipment outside of The U. S, reducing The U. S. Exposure of oilfield equipment, and we were quite successful on that. We are having double digit sales growth in The Middle East and also in Latin America.

We have won the ESG awards, more details soon. And over the course of the year, we recalibrated our strategy. We are in the final stages now, which will also result in a rebranding of SPO. Here, an indication that we are going to plan an update on that at early ’twenty five. Let us talk about some of the highlights of the strategic highlights in the third quarter regional expansion.

One example was that we had additional sales with current customers and new customers in Latin America, specifically also of dissolvable flux. And also in Central America, we were successfully negotiating a three year contract in the long cycle customer project in Guyana with one of the oil majors. When talking about regional expenses, we also need to talk about The Middle East as one of the growth regions. And here, we moved into finally moved into a new facility in Saudi Arabia. We talked about that earlier this year, moved into the new facility.

We are in Saudi Arabia since a couple of years, offering the complete product portfolio of SVO, of AMS as well as OE as a hub in doing business in Saudi Arabia. And we extended that facility, moved to a new facility that provides us more space for assembly, for service and sales activities. And this has been successfully completed in the month of September. When we talk about some news on energy transition and ESG initiatives, one example is that we are currently entertaining an R and D project where we are benchmarking for high pressure, high temperature applications for carbon capture and storage. We are doing that with two prominent companies in Austria, Bolla on the supplier side and OMV on the customer side, where we are assessing what kind of material grades are best used in carbon capture and storage applications because besides our Oil and Gas business, we are of the opinion that steel and material and high performing steel and material will be needed for geothermal, for carbon capture, also for hydrogen applications.

And we are currently in that process. And this is more for the local people. You may know about the Deep with three e written projects here in Vienna for district heating in a project between Vienna Energy and also OMV. And we received an order and will be part of the project with providing our equipment. And already indicated and also highlight in the third quarter was that SVO was honored with a new introduced ESG award of the Austrian leading companies for the region Lower Austria where Cernitz and SVO is placed.

And this award highlights our commitment to environmental sustainability, social responsibility and corporate governance, and we are quite happy winning this ESG award as ESG sustainability is part of our growth strategy. And with that first introduction, I hand over to Kempel for the market environment.

Kempel MacPherson, Chief Operating Officer, SVO: Many thanks, Faust, and good morning, everybody, from my side. So let’s talk about the developments of the market environment during the last year and particularly into this last quarter. In 2024, we’ve seen a shift of our market environment that affects both the long term and the near term outlook. And then let’s look at them separately. So if we look at the long term, really, the long term fundamentals for the oilfield service industry really remain solid.

Demand for traditional energy sources continues, while at the same time, new energy markets, particularly in renewables and technology to support the energy transition are accelerating. And these dynamics all present growth opportunities for SVO, which we are actively working on. In the near term, we’re navigating a more complex scenario. Heightened oil security remains a concern, and this is set against a backdrop where the global oil market is finally balanced between supply and demand with emerging concerns regarding potential oversupply. So we have increased non OPEC plus output and then we have the uncertain actions with regard to OPEC plus This adds to kind of unpredictability coupled with the economic slowdown in growth in China and also in Europe and The USA.

So together, all these factors increase the pressure on commodity pricing and stability. And you can see from the chart, the oil price declined 17% in the quarter. So overall, our industry’s fundamentals do remain intact for the long term, but we closely monitor these near term fluctuations. In the quarter, we’ve observed a moderation in industry spending. Looking at the rig count, global numbers have remained relatively flattish in Q3.

The U. S. Rig count has stabilized at a lower level, averaging around five eighty plus rigs overall. This stability at lower levels reflects the ongoing impact of the capital discipline and the industry consolidation that’s going on in the industry right now, and we talked about it during the last earnings release. But notably, drilled uncompleted wells or DUCs have continued to decline by around 6% year to date, yet The U.

S. Production levels have remained the highest they’ve ever been, which indicates that operators are leveraging existing wells rather than expanding the drilling activities. So as we have mentioned in the past, at some point, this inflection point needs to change and we’ll need to initiate new drilling projects to maintain production levels. Another impact in The U. S.

Market that could be supportive of an increase in activity in the medium term is the new LNG facilities and gas pipelines coming online in ’twenty five. These will significantly support U. S. LNG capacity and the takeaway capacity opening up current bottlenecks that there is at the moment. Internationally, activity was supportive throughout the first half of this year.

However, recent developments, particularly with the economic slowdown in China and the drop in oil prices in Q3, have led to a slowing demand over the past few months for some of our customers, particularly within our AMS division. In more recent conversations with our customers in our AMS division reflects a much more cautious tone, and they even mentioned this in their own quarterly three announcement last month. So we anticipate a more moderate sales environment in the coming months as they take a much more conservative approach to spending. In this slide, you can see the development of our quarterly bookings going back to the start of ’twenty three. And as Claus has already mentioned, Q3 bookings amounted to million, slightly lower than the previous quarter by 4%, but actually up 5% on Q1 bookings, and this is predominantly down to the growth in our OE division.

If we look at the first three quarters, bookings decreased approximately 13% compared to the same period in 2023. So that went down to March from 04/27. Looking at the sales in a bit more detail, this shows the development of the sales split between the two segments. And just for clarity, AMS is a segment that’s at the top. Sales in the period of million continued at a similar level to last year, just marginally down by about 3% and reflects the rebound of the OE business in Q3, while sales in AMS have moderated over the course of the year.

For the first nine months of ’twenty four, sales in the AMS division amounted to €222,000,000 compared to €250,000,000 in the prior period last year, so down 11%. The OE division showed an improved sales performance of million, an increase of nearly 9% compared to the same period of the previous year. And this is all thanks to the positive developments in the third quarter, which included expanding business into growth regions outside of The U. S, particularly in The Middle East and in Latin America. And with that, I’ll pass back over to Claus.

Claus Mada, Executive Board Representative, SVO: Okay, Paul, thank you very much. Let us now discuss the financial figures, the profitability figures in more detail. And as I indicated at the beginning, the shortfall in terms of EBITDA and EBIT is predominantly driven by the performance of the Oilfield Equipment division in the first half of the year that we extensively discussed also when discussing the half year figures. To remind you on that, the weak U. S.

Market on the one hand, the less favorable product mix with lower tool sales as a second argument, and the additional operational expenses that we have taken in order to put the structure of the oilfield equipment on a better path and to increase the performance of the division. And this has shown also through in the third quarter in Oilfield Equipment. And the second reason for the EBITDA and EBITDA shortfall is the lower performance of AMS in the third quarter with lower sales and a related gross margin on the one hand, but also, and this is quite surprising when I say that now, a significant foreign exchange loss because in the third quarter, the U. S. Dollar significantly decreased, And now in the fourth quarter, it is getting stronger, which should also be supportive to us.

The EBITDA figure stands at 75,800,000 which is a margin of 17.8%. The EBIT is at $51,800,000 which is a margin, a double digit margin of 12.2%. Profit before tax and profit after tax are following that development. Maybe one comment to the profit before tax. Last year, we had this onetime charge, financial expense related to this legal settlement.

This year, this is not happening. Therefore, our financial result in the first three quarters is better than in the previous quarters. When we talk about the EBIT per segment, I have it already indicated that the first half year performance of OE and the Q3 performance of AMS is the reason for the EBIT below the previous year. AMS had an outstanding excellent performance in the first half of this year with an EBIT margin of 23%. And compared to the previous year, we have seen this division performing at the highest level since the year 2012.

This has moderated in the third quarter. Also, foreign exchange losses of almost $3,000,000 impacted that, but the year to date figure of AMS is still an EBIT margin of more than 20%, just also to mention and to put that into a context. On the OE, as I said before, predominantly, the first half of the year was taking the profitability down with the weak markets, the additional expenses that we incurred as well as the less favorable product mix. But this development in the third quarter is a promising one. On the one hand, our internationalization efforts, and I talked about it, we had good sales in Central And Latin America, for example, dissolvable plaques from VELPOSE.

We had a good development in The Middle East, and therefore, sales and profit increased already significantly in the OE division in the third quarter compared to the first and to the second quarter. And even compared to the third quarter of the previous year, EBIT margin was at 8%, and this is a promising path. The journey should not be ending here. We are clearly targeting double digit EBIT margins for the Oilfield Equipment division. And I said to you, we can do better in Oilfield Equipment when we discussed the half year figures even when the market is not improving, and it also did not really improve in The U.

S. In the third quarter. When we talk about cash flow, liquidity and gearing, you see the bar rising to $42,500,000 So the cash flow generation is strong. It continued to be strong. We delivered a free cash flow of $15,000,000 in the third quarter, and I also see that trend continuing as we are clearly generating cash flow.

Last year, the acquisition of Praxis was included. Therefore, the adjusted figure was $18,800,000 plus $17,000,000 so in Gevincinity of $35,000,000 But even compared to that, this year’s cash flow generation is a better one. And that is also then resulting in a better gearing situation. Gearing has been further improved to 9.6%, and the net debt has been further reduced. And I also see that trend continuing.

When we look at the balance sheet, the biggest news definitely is significant increase in liquid funds of almost million. And besides the cash outflow of the dividend, the cash generation from our operating performance, some repayment of debts. We had in the third quarter a successful financing round. On the one hand, already doing repayments for the next year, but on the other hand, also providing additional funds for our strategic initiatives, for our strategic ambitions. Therefore, the cash now at the September stands at $260,000,000 And this is the only reason why the equity ratio went down because we calculate the equity in relation to the total assets or total liabilities, and this was the reason why the equity ratio went down.

Equity in absolute figures went slightly down because of the weaker U. S. Dollar, but I see as long as the strength of the stronger U. S. Dollar is continuing, also the equity getting higher in the fourth quarter based on the foreign exchange currency translation.

And this takes us to the outlook. And here, I do refer to what Kempel already said. The long term outlook for the energy industry remains positive. The fundamentals are good as well as for the oil business and predominantly also for the gas business. For example, electricity in The U.

S. Is to 40% based on gas. Electricity should significantly increase over the next couple of years based on data centers, artificial intelligence. And one of our customers also said this is the decade of gas, and we see that as the same. But the recent developments in with a more dynamic environment in terms of volatility in our commodity pricing, the weakening demand of the oil demand growth gave some uncertainties.

And therefore, the shorter cycle business is at the moment, and also that can change, and you see that already in the next bullet point, is at the moment a bit more cautious. Because policy changes in key markets, geopolitical uncertainties, volatility in the commodity prices do have an influence to the positives, to the negative. And therefore, we have to observe and to monitor the situation closely and also prepare for that. What does this mean for the two divisions that on AMS, we are monitoring the situation. The recently demand softening of our customers is taken into consideration, and we are experienced in that.

And on the other hand, we are going to pursue our diversification strategies also for AMS. And here, especially, three d metal printing is very promising. We have purchased another machines during the course of this year. Promising orders also outside of our oil and gas industry, and we see the growth rates and also the number of metal printed parts going forward significantly increasing, and we are supporting that also with strategic investments into that business. On the OE side, as I said, the third quarter was promising in terms sales and profitability.

Here, this driving of performance improvement is going to continue. The regional expansion in growth markets is happening. We as I mentioned to you, we moved to a bigger facility in Saudi Arabia. We are going also to increase the facility in Dubai for our well completion business as we are seeing nice potentials in that area. And this is definitely the path for oilfield equipment to take back the profitability into the double digit margin area.

And already indicated, but more to come at the beginning of next year, is the finalization of the strategy recalibration and the relaunch of our SPO branding. But here, more to come. It is in its final stages, and we are preparing then the update for you all in early ’twenty five. And with that, we are at the end of our presentation. We kindly ask you to raise your hand for potential questions, and we are more than happy to answer them.

The first question is coming from Richard Thorsten from Dernter. Richard, happy to take your question.

Kempel MacPherson, Chief Operating Officer, SVO: Hi, good morning, guys. Alan,

Oleg, Analyst, RBI: two questions from me too. Firstly, you mentioned in the release that you don’t expect a significant

Kempel MacPherson, Chief Operating Officer, SVO: Should I take the first question, you take the second question? Sure. Sure.

Claus Mada, Executive Board Representative, SVO: Sure. Yes, The U. S. Market did not improve, and current talks are also that for the time being, we see it on that level with slight increases. As I said, political changes may have an impact to that, but it also didn’t improve in the third quarter, and we managed to do better in the Oilfield Equipment division.

So on the one hand, it is coming from operational efficiencies even in a more challenging U. S. Market. And on the other, we continue on our path of regional expansion, and therefore, we see getting into the year 2025, aiming to generate EBIT margins in the double digit percentage area.

Kempel MacPherson, Chief Operating Officer, SVO: Kepler? Hi, Richard. With regard to AMS and the weaker Q3 results, this is driven by our customers and their overall demand for the tools and equipment that we manufacture for them. We really we came off an exceptional year in 2023 where customers ordered a lot of equipment to satisfy then a much higher demand. And what we’re seeing now is that they are getting a little bit clogged up with relation to their inventory.

So they’ve moderated their spending level from that perspective, but also they are getting pressure in the market as well, and they’re seeing their market come down too. So that’s the challenges that we have in the AMS market is working for these customers where they’re dealing with a little bit more inventory than they need at the moment and the challenge in the marketplace as well. But what do we do to encounter the effects of that? Well, we’re very experienced in the cycles in this business, particularly in the AMS business, and being able to adjust our business to suit appropriately the levels of business that we have. But more importantly, we’re really doubling and tripling down on the efforts in our diversification strategies, and particularly on the additive manufacturing to try to bring up the balance.

Claus Mada, Executive Board Representative, SVO: You caught me with a quick question that I do not exactly know out of the top of my head, but I can we can provide you with that feedback afterwards, Richard. Yes. Next (LON:NXT) question is coming from Oleg from RBI. Good morning, Oleg. Looking forward receiving your questions.

Oleg, Analyst, RBI: Yes. Good morning, gentlemen. Thank you for the presentation. I have a few follow-up questions on the previous questions that have been asked. So you mentioned that the AMS segment results were strongly impacted by the duration of the spending globally.

So again, maybe you can say a few words about where exactly do we see this moderation happening in terms of geographies? Because previously, we were of the impression that, for example, Middle East, but also Latin America would be more resilient in terms of oil price volatility. And speaking about oil price volatility, which you also mentioned in your release, do you believe that the moderation of activity is primarily driven by the weaknesses in the oil price or it could be also the impact of OPEC plus policy of maintaining low oil production and to avoid an oversupply of the market. So European would be very valuable here. And secondly, just to again to help us understand the positive developments seen in the OE division, Would it be fair to assume that the growth was primarily driven by Praxis?

Because you mentioned that you’ve seen also some growth in U. S, but all in all, I guess, I would guess it was mainly practice because you’re talking about this expansion on the international markets. And again, any guidance here for the OE division or at least for the non U. S. Business would be very welcome.

And lastly, just a short question, if you could reiterate what was the impact of the unfavorable FX rates on the Q3 revenues and EBIT per segment, please, if possible? Thank you.

Kempel MacPherson, Chief Operating Officer, SVO: Good morning, Oleg. Let me try to address your first question with regard to AMS. That’s a difficult question to give you specifically because we manufacture equipment on the capital side for our large customers and we send them to products and technology centers that they have spread around the globe. They then take those tools and they assemble them and they ship them to their field locations. So we might be shipping a lot of tools to The U.

S, but ultimately those tools may then get shipped to be used in The Middle East or Asia. So it’s a very difficult thing for us to give you a specific answer on that with regard to AMS. What we do have in AMS is we have our repair and service businesses. And what we can say is that certainly in The U. K.

North Sea and to a lesser extent in The U. S. And Gulf Of Mexico, those repair businesses have, we have definitely seen a reduction in activity, which does indicate in those particular areas there’s less activity going on for sure. And in terms of the moderation of the oil price in OPEC, just as we explained before, I think customers are very concerned about where the balance is because if OPEC release these extra barrels into the market starting potentially in December, what that will do and what will that will do in terms of driving down the oil price, we can see our customers in discussions with them are extremely concerned about that. Take The U.

S. Market, for instance, and speaking with them, This has become a very finely balanced market where the oil price, where it is at, they’re getting solid returns from that, but really focused through consolidation and increasing price. So any more additional barrels to the market could drive the price down and it could be challenging, particularly for The U. S. Market at the moment.

Claus Mada, Executive Board Representative, SVO: I take the question on Oilfield Equipment and where is the growth coming from. When you take the year to date figures of OE and the increase in sales of 9%, you have three different developments. You have the acquisition of Brexit, which is clearly contributing to the sales growth. You have the weakness in The U. S, which was reducing it, but you also have other regions like Asia and Central And Latin America, who were increasing.

When we take the development from the second to the third quarter, it was not driven by Brexit because Brexit is delivering solid sales to the group, but is already in our consolidation since the fourth quarter of last year. The increase from the second to the third quarter were predominantly sales, tool sales and also increased business with existing and new customers in the Central And Latin America. And I gave the example also of dissolvable blocks from our wellbuzz company. Question on, meanwhile, for Richard and also for the rest of you, I looked up the figures, geographical split, sales split, oilfield equipment. On a year to date basis, we are doing about 60% in The U.

S. And about 40% in the rest of the world, spread over Middle, Central America, Africa, Europe, The Middle East and also the Far East. And on the foreign exchange losses, the most significant one was in the AMS division with 2,700,000.0 and Oilfield Equipment suffered the foreign exchange loss of about €300,000 so not very material. Therefore, I did not explicitly mention it in the presentation. But for AMAs and then also for the group, it was key because I saw in one of the first announcements that the EBIT was going down compared to the second quarter, but the adjusted EBIT for the third quarter is in the vicinity of EUR 18,000,000.

Oleg, Analyst, RBI: Right. Thank you for answers, very helpful. And do you have also the estimated impact on the revenues of the FX?

Claus Mada, Executive Board Representative, SVO: I don’t have it, Oleg. But here we are talking about translation impact, and therefore, I do not see them very material because we are calculating it with an average rate and therefore not with a balance sheet date. Therefore, we are not talking about significant impact on the sales level.

Oleg, Analyst, RBI: Understood. Thank you very much.

Claus Mada, Executive Board Representative, SVO: Very welcome. Next question is coming from Kevin Roche from KAPLAN. Kevin, good morning. Happy to take your questions.

Kevin Roche, Analyst, KAPLAN: Yes, good morning. Thanks for taking the time. The first one, sorry, I will continue to chase you in the different dynamics between AMS and OE. Because when you look at the order intake, as you’ve shown in the presentation, that’s relatively flat quarter on quarter since the beginning of the year. But you have adopted quite a kind of bearish tone on the AMS division for the short term.

So is it possible for you to quantify the order intake trends, Q3 versus Q2, for example, and maybe the magnitude that you have seen in AMS versus OE, just to understand the change in the tone that you have for the AMS division? And as a follow-up, you mentioned the cautiousness of your client, etcetera. Does it mean that you are already suffering from pricing pressure that you have to give some discounts on the new tenders, new volumes that are that are calling? And the last one, is there any strategy of solution or whatever that you are looking at in a way to reduce the impact of the ForEx that are impacting your earnings on the quarterly earnings?

Kempel MacPherson, Chief Operating Officer, SVO: So on the order intake with segments, we don’t report that information, Kevin. So we can’t provide you with that at the moment. But when it comes to looking at the market and the pricing pressure on AMS, yes, for sure. As we look forward and we see what opportunities are there, customers are becoming very, very price sensitive. So we have definitely moved into a much more cost sensitive environment with our customers in AMS looking forward.

Claus Mada, Executive Board Representative, SVO: In terms of the foreign exchange, yes, Kevin. Here, we have to take into consideration that we are a global business reporting in euro and doing quite some business in the U. S. Dollar. You need to know that about 80%, eighty five % is invoiced in the U.

S. Dollar from an input cost between 5060%. Therefore, we do have this transactional risk. On the hedging, for example, of bookings or of receivables, we are anyhow avoiding foreign exchange losses and foreign exchange gains as we are managing that. But on the other hand, we have to take into consideration that we are a global business with not a natural hedge in terms of U.

S. Dollar on the sales level and also on the cost level. And therefore, at least part of this foreign exchange has to be taken into the consideration. The impacts are already getting smaller and smaller. Basically, where we can also actively work on that, but we have seen a significant drop in The U.

S. Dollar in the third quarter. Now it is getting stronger in the fourth quarter, which is a promising news. But this is what we, to some extent, have to take into consideration.

Kevin Roche, Analyst, KAPLAN: Okay, understood. And maybe just the last one, if I may, sorry if I missed it. The,

Oleg, Analyst, RBI: in

Kevin Roche, Analyst, KAPLAN: a way, new financing structure that you have, the new financial solution, is there any big change on the financial charges to expect or not at all?

Claus Mada, Executive Board Representative, SVO: No, this is a very valid question, Kevin, and I’m more happy to give some insights because we have done a financing round with promissory note loans that, as in the past, we wanted to avoid any default covenants with an attractive pricing, a long term financing of five to seven years. That gives us the flexibility, on the one hand, to, yes, maneuver the organization to have the additional funds also for the strategic execution. And therefore, we are very happy with the financing as we got it at very good terms. Okay, thanks. Welcome.

There is now one question from coming from Cornelius Kicks from Hauke and Haukeuser. And the question is, I’m reading it as we are having obviously technical topics on the other line. Were you surprised that the normalization slowdown in AMS occurred as early as it did thanks to that magnitude? Could you speak in the operating leverage dynamics in this segment? Campbell?

Kempel MacPherson, Chief Operating Officer, SVO: Thank you, Cornelius. I think it’s fair to say we were not surprised because we are in dialogue with our customers on a daily basis, yes? So this is not something that just suddenly appeared for us. We have seen in dialogue with our customers a very continued gradual reduction in terms of their requirements and their order intake and also their request to push existing orders out into the horizon, which sometimes we can accommodate and sometimes we can’t. So this is a discussion that has started several months ago and is continuing to progress.

So it’s not something that’s come out of the blue. And we have already been planning in our business for it and downsizing and reducing our workforce in some of the associated businesses that this affects. So yes, it’s not a surprise. And I

Claus Mada, Executive Board Representative, SVO: think to add to that, Kempel, you also indicated it in the half year figures where you said, look, guys, we are delivering an EBIT margin of 23%, which is outstanding. And keeping that on that level will not be possible on a normalized basis. But even on the year to date figures with almost 21%, the performance of AMS is outstanding. And not to talk AMS down now.

Kempel MacPherson, Chief Operating Officer, SVO: Yes. No, and you’re right. And you mentioned that, Claus, we came off the back of an exceptional year in ’twenty three. And that was always we knew that that level of activity with those customers in MS was not going to continue in Finitum. So this has been coming and we’ve seen it.

Claus Mada, Executive Board Representative, SVO: Okay. Ladies and gentlemen, I heard that there are no further questions. I thank you once again for participating in the presentation. I do hope that the comments and the answers and the insights on the Q3 and year to date figures were comprehensive enough to you. Thank you for your questions.

Wishing you a nice day and see you soon.

Kempel MacPherson, Chief Operating Officer, SVO: Thank you very much, everybody.

Claus Mada, Executive Board Representative, SVO: Goodbye. Bye bye. Bye bye.

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