Dr. Hönle Q2 Earnings Call Highlights

Key Points

• Dr. Hönle’s second quarter improved sequentially, with revenue rising to EUR 23.8 million and EBITDA increasing to EUR 2.2 million, helped by a better product mix, cost discipline, and working capital management.
• Curing remains the main weakness, as revenue fell 18.6% and EBITDA stayed negative amid weak plant and mechanical engineering demand, customer disruptions, and intensifying competition from lower-cost rivals.
• Disinfection and Adhesive Systems were the brighter spots, both posting growth, while management kept full-year guidance unchanged at EUR 95 million to EUR 105 million in revenue and EUR 6 million to EUR 9 million in EBITDA, though results are expected in the lower half of the range.

Dr. Hönle ETR: HNL reported a stronger second quarter in the first half of its fiscal year, with management saying improved product mix, cost discipline and working capital management helped offset continued weakness in parts of the company’s industrial equipment markets.

Chief Executive Officer Dr. Franz Richter said revenue rose sequentially to EUR 23.8 million in the second quarter from EUR 21.5 million in the first quarter. He said the market environment remained “a little bit difficult,” particularly in plant engineering and mechanical engineering, which weighed on larger systems in the company’s Curing business unit.

By contrast, Richter said the Adhesive Systems and Disinfection units saw a more active environment and delivered positive results, with trends pointing upward. Group gross profit for the first half was EUR 30 million, slightly higher than in the comparable period, while EBITDA rose to EUR 2.7 million for the first half. EBITDA improved from EUR 0.5 million in the first quarter to EUR 2.2 million in the second quarter.

Second-quarter improvement driven by mix and cost discipline

Chief Financial Officer Robert Stark said Dr. Hönle’s project-based business can lead to quarterly fluctuations, particularly in Curing, where large equipment projects affect timing, revenue recognition and margin contribution.

Stark said the second quarter was “significantly stronger” than the first, with revenue increasing by more than EUR 2 million and the EBITDA margin improving to around 9%. He attributed the improvement mainly to a better product mix, strict cost discipline and an improved cost-of-materials ratio compared with the prior year.

In Adhesive Systems, revenue reached EUR 17.4 million, slightly above the prior-year level, while EBITDA increased by about EUR 0.3 million to EUR 2.3 million. Stark said the improvement reflected a better product mix, an optimized order structure with fewer small-volume orders, and efficiency gains in production and logistics.

Richter said the Adhesive Systems business continues to focus on demanding applications in electronics, medical technology and optics. In response to analyst questions, he said the company is working to deepen relationships with larger customers through technology days and technical exchanges, although qualification and design-in processes can take several quarters before generating meaningful volume.

Curing remains the main challenge

The Curing business remained under pressure. Stark said revenue in the unit declined 18.6%, and EBITDA was negative EUR 1.3 million. He cited continued investment reluctance in mechanical and plant engineering, affecting both printing press applications and industrial surface coatings.

Management also pointed to the insolvency proceedings of Manroland Sheetfed, described as one of Dr. Hönle’s larger customers, as well as the discontinuation of the company’s solar simulation systems business. In the Q&A session, management said Manroland Sheetfed represented just under EUR 4 million in revenue last year, though activity had already slowed in recent years. Richter said service and spare-parts work tied to installed systems is expected to continue, but new equipment business will be affected.

Asked whether Curing had reached a bottom in the first quarter, Richter said it was difficult to say. He said Dr. Hönle is “fighting for each order” while also addressing internal product development issues. New products are expected around the third calendar quarter, which corresponds to the company’s final fiscal quarter, he said.

Richter said the company faces stronger competition, including from Southeast Asia and China, and acknowledged that parts of the Curing product portfolio are priced high relative to emerging competitors. He said development work is underway to reduce system costs and improve competitiveness. For one LED product line, he said the company sees potential for a 25% to 30% cost reduction.

Management said restructuring in Curing will focus on cost management, a more focused product portfolio, engineering and production improvements, and a stronger push into after-sales and lifecycle solutions. Richter and Stark said they are jointly leading the restructuring effort.

Disinfection grows, with international investment weighing on margins

Disinfection continued to grow, with revenue increasing nearly 8% to EUR 14 million and EBITDA rising to EUR 1.8 million. Stark said higher sales of UV lamps and equipment, particularly in water disinfection, were the main drivers.

In response to questions about softer second-quarter margins in Disinfection despite top-line growth, management cited investments in sales capacity in the U.S., China and Southern Europe, as well as a product mix effect. Richter said lamps and components carry very high margins, while systems business has lower margins.

Management said current sales contributions from China and the U.S. remain low, with China below EUR 1 million and the U.S. “shy of EUR 1 million,” but the company is focused on building those markets.

Richter also discussed opportunities in ultrapure water applications, saying initial development work had been completed with an integrated circuit manufacturer in Germany’s Dresden area. He said the application is now being introduced to larger customers in Asia, especially Taiwan, and that proven use in a production environment provides a strong reference.

Balance sheet remains solid as debt declines

Stark said cash generated from operations was nearly EUR 2 million in the first half, supported by working capital management. Cash flow from investing was negative EUR 0.7 million, reflecting investments in property, plant and equipment and intangible assets. Cash flow from financing activities was EUR 1 million, mainly driven by repayments of bank and lease liabilities.

Cash at the end of March stood at EUR 7 million. Net financial debt decreased to EUR 38.8 million, down from nearly EUR 45 million at the end of March last year and nearly EUR 50 million at the end of 2022. Equity was EUR 76.6 million, with an equity ratio of around 53%.

Stark said the balance sheet remains robust and noted that a significant portion of the company’s financing relates to corporate real estate and buildings, secured on a long-term basis at attractive interest rates.

Guidance maintained, with results expected in lower half of range

Dr. Hönle maintained its fiscal-year guidance for revenue of EUR 95 million to EUR 105 million and EBITDA of EUR 6 million to EUR 9 million. Richter said management still views the guidance as realistic but expects results to land in the lower half of the range, depending on market conditions.

“Everything is depending on the market environment,” Richter said, describing the current environment as unpredictable. “So far it looks like that we will stay in that guidance.”

About Dr. Hönle ETR: HNL

Dr. Hönle AG engages in the supply of industrial UV technologies and systems in Germany and internationally. The company operates through three segments: Adhesives, Equipment & Systems, and Glass & Lamps. The Adhesives segment provides industrial adhesives for applications, such as consumer electronics, automotive, optics and opto-electronics, medical technology, and glass processing. The Equipment & Systems segment engages in the provision of solutions used for drying inks and coatings, curing adhesives and plastics, disinfecting surfaces, and solar simulation.

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