Analyst conference call transcript

THIRD QUARTER 2021 RESULTS ANALYST CONFERENCE CALL TRANSCRIPT

8 NOVEMBER, 2021, 11:00 CET

[Presentation slides available here]

Slide 1:

Moderator: Ladies and gentlemen, welcome and thank you for joining Waberer's Q3 2021 Results

Analyst Conference call.

My name is Viktor Majzik and I'm the IR Manager of Waberer's. Mr Barna Erdélyi (member of the Board of Directors) and Mr. Szabolcs Tóth (Group CFO with responsibility for Finance & Strategy) are also present from Waberer's side at the call.

The conference call will last roughly 60 minutes including both the presentation and Q&A session.

I kindly ask everyone to mute their microphone during the presentation and only turn it on during the Q&A session. In case you would like to raise a question, please either write into the Chat window of Microsoft Teams application or please indicate in the Chat window that you would like to raise a question verbally or use the "Raise your hand" function in the Teams application

I would now like to turn the conference over to Mr. Barna Erdélyi. Please go ahead.

Barna Erdélyi (BoD member)

Good morning everyone. Thank you very much for joining us today and let me welcome you to our third quarter results conference call.

Slide 3:

Barna Erdélyi (BoD member)

First of all, this is the first quarterly analyst call since I'm an Executive Board member and Zsolt Barna took over the CEO position of the Group. Zsolt has been acted as the Managing Director of our RCL segment for 13 years and managed to increase the revenue of the segment from 7 to 50 billion Forints. Based on our internal responsibility Zsolt took over all the responsibilities regarding the operational issues however, as a Board member kept all the duties of keeping in touch with capital market actors including both institutional investors and analysts.

Slide 4:

Barna Erdélyi (BoD member)

As a summary of our third quarter of 2021, I can tell you that

• After the 5th consecutive quarters with positive EBIT performance, I can confidentally states that new operational model is successful and positive performance is

stabilized. For the 2nd consecutive quarters, all 3 segments - including ITS segment - reached positive EBIT in the Q3 2021.

• Group level reported EBIT reached EUR 6.6 million in the 3rd quarter of the year and reported Net Income was EUR 3.3 million. The growth compared to the same period last year was EUR 5.4 million on EBIT level and EUR 4.5 million on Net Income line.
• International Transportation Segment further improved its financial performance compared to both the previous quarter and also to the same period of last year and reached EUR 1.4 million EBIT that also resulted in a positive cumulative year-to-date EBIT in the segment.
• I also have to add that despite the positive Group-level results in the latest quarters, our industry has to manage several unpredictable risks in the operation that is expected to remain with us for at least several months. We are confident that successful Group level 2021 performance is guaranteed however negative effects of the external factors are already visible in our RCL segment. Later in the presentation, I will introduce these risks (namely, chip & other component shortage at customers, driver and AdBlue shortage in the operation, and the unpredictable changes of the global supply chain processes) that we are currently facing and how we can cope with it in the coming period.

Slide 5:

Barna Erdélyi (BoD member)

On the following 2 slides, I would like to demonstrate the trend and the results of the Company's performance both on the Group-level and in the Hungary-based operation of ITS segment.

On the above chart, the Group level recurring EBIT is presented since 2018 on a quarterly basis. Even with the seasonal effects normally occurs in the 3rd quarter of the year due to the lower industrial performance in the holiday season, Waberer's Group managed to keep the profitability level that we gained in the first 2 quarters of the year and cumulative year-to-date EBIT of the first 9 months reached EUR 19 million. The quarterly EBIT margin reached 4.5% that is in the typical range of our industry.

During the quarter, ITS segment slightly further increased compared to the 3rd quarter of last year, Other segment managed to keep the EBIT level of the same period of 2020 while RCL segment decreased due to unpredictably fluctuating order volumes mostly at automotive clients and due to return of the normal pre-covid expense level mostly at subcontractor and driver wage cost lines that supported last year's performance.

For the remaining period of the year, we expect that negative external risks remain with us and will have a negative effect especially on the RCL segment performance but we are confident that we will be able to close the 2021 business year with being proud in Waberer's Group's full-year financial performance.

Turning to the indebtedness level of the Group, I can report to you that Net Indebtedness level further decreased in the latest quarter as you can see in the below graph. 1.6x leverage position is the lowest since the beginning of 2016 as a result of the parallelly decreasing net indebtedness and the growing EBITDA position. As noted in the previous quarter, we manage to relaunch fleet replacement program from the end of the year and we plan to replace roughly 1 300 trucks until the end of 2022 and also some additional trailers and smaller vans that will generate roughly EUR 50 -55 million net debt increase gradually in the coming 5 quarters.

Slide 6:

Barna Erdélyi (BoD member)

Turning to the results of the Turnaround in the ITS segment, on Page 6 I would like to present to you the quarterly recurring EBIT of the ITS segment and I also would like to give you a short insight into how the Trade Lane model in the Hungary-based operation of ITS segment influenced the major operational KPIs.

Starting with the quarterly segment EBIT, presented on the above graph, I can report to you that despite the traditionally lower intensity of the summer holiday season, ITS segment managed to have a further increase in its recurring EBIT and reached EUR 1.4 million in the 3rd quarter of 2021, that was the 5th consecutive quarter with improving segment performance. Despite the BREXIT-related turbulences in the first quarter of the year, cumulative segment EBIT also turned positive for the first 9 months of 2021. Due to the coming holiday season and suspension of the majority of international road transportation in the last 2 weeks of the year, we expect that no further increase is achievable in the coming quarter but - in case no further external shock influences the operation - the positive trend will come back and continue from 2022 again.

On the below chart, I would like to present how the new Trade Lane model, the trade lane model is still focusing on high quality and value-added services to the most demanding multinational customers instead of pure price-based competition. The net revenue-generating capability of the fleet increased by 20% compared to 2019 and by 12% compared to 2020 as you can see on the right below chart. Net revenue consists of the revenue generated by the fleet and decreased by the fuel and transit costs that mean that the increasing net revenue-generating capability is independent of the price increase effect of the significantly increasing oil prices.

Below left charts show that higher net revenue-generating capability is mostly driven by the significantly better achievable net price level - again without the effect of the change of fuel and road toll and transit fees - on the current service portfolio while we managed to keep and slightly increase the mileage performance of the fleet. The strategy of the segment for the coming period is to further increase the share of value-added services in the portfolio that - in case of further successful execution - will have a further positive effect on the average price level of the international road transportation segment.

Slide 7:

Barna Erdélyi (BoD member)

On the next slide, I would like to give you some details about the relaunch of the fleet replacement program. I would like to demonstrate why this is important for the company and what is the expected volume of fleet replacement for the coming quarters. We also would like to continue the fleet replacement after 2022 however we only added figures for the period where we already have a closed tender for truck purchases. To have a full picture, we will also replace some additional trailers and also some lorries and vans - operating in the regional segment - however its volume is significantly lower compared to trucks in the 2021 - 2022 period.

The top-down target for the fleet replacement program is to gradually decrease the average fleet age to 2-2.5 years by 2024 from the current 3.5 - 4 years age level. Based on our experiences, the overall achievable operational cost saving could reach EUR 2.5 - 3.5 million annually in case we can decrease the average fleet age by 2 years. Lower operational cost level is mostly driven by the lower fuel consumption and lower maintenance need and the availability of a younger fleet is also higher due to the lower maintenance need.

Despite younger fleet naturally means a higher gross indebtedness level as the fleet is dominantly financed by operational leasing, the monthly leasing installments and also the monthly depreciation will remain more or less on the current level even after the fleet replacement is already relaunched.

The major goal of the replacement program is to increase the cost competitiveness level of the segment, some additional benefits also helps us to increase our competitiveness:

• Via the improving aerodynamical characteristics of the new trucks and new generation of diesel engines, the fuel consumption could decrease by as much as 5-6% that not only decreasing fuel costs but also decreases our carbon footprint that is an increasingly important factor to our customers;
• New fleet provides more comfort for the drivers that is again an important competitive advantage in a period when driver shortage is again a key challenge of the sector;
• Keeping the reliable purchaser image and a long-term reliable partnership with the truck manufacturers also helps us to gain the best achievable price level nowadays when the HGW market is extreme from many aspects. And that can be also essential in a competitive industry like transportation.

Slide 8:

Barna Erdélyi (member of the Board)

We perceive that risks around the logistics industry appear more and more even in the mainstream media, so we decided to give you again a short summary of how these risks influence our operational and financial performance in the short and in long term.

On page 8, we summarized all the external factors that mostly influence our daily life and we expect them to stay with us in the coming months.

1. Component shortage - Despite component shortages - especially chip shortage - doesn't influence us directly, we feel that both our truck manufacturing partners could only fulfill our orders with the extra long order time period and we also feel that order volumes at our customers also

unpredictably change. In the International Transportation Segment, we can reallocate the fleet from partners with temporary decreasing manufacturing capacity to other partners in Europe so while the shortage doesn't affect all the customers at exactly the same time, the financial risk of the component shortage at our customers is limited. As the business model in the regional segment is different, human resource reallocation at manufacturing related services, especially at in-house logistics services is not possible, so the financial effect of the decreasing manufacturing volume at our customers is more visible in the RCL segment and we expect to stay with us in the coming months. Based on the information we receive from our partners, the chip-related shortage is expected to significantly decrease in the 2nd half of 2022 the latest.

1. Driver shortage - After a roughly 1- 1.5-year-long period, the driver shortage as a key challenge appeared again in our life, too. However, this is absolutely not a new topic for us, we had to live with it for many years before the pandemic era until 2020. Even before the pandemic era,
   Waberer's managed to build up driver hiring channels in the surrounding countries, including Serbia,
   Romania, Ukraine that we started actively using again a few months ago. As the current fleet size in the ITS segment is roughly 40-45% smaller compared to the 2018 volumes, the necessary driver pool size is also significantly smaller thus the driver shortage-related challenges decreased. We also believe that driver shortage will stay with us in the coming years and we have to provide an attractive working environment to our drivers including wage level, truck quality level, reliable employer image, etc. that could also affect the long-term cost level of all industry. In case the driver shortage stays with us in long term, we even need to be able to attract drivers to work with us from even further countries before the autonomous driving solution will really reach the market-ready stage.

1. AdBlue shortage- The latest challenge that just appeared both in our life and also in the media is the sudden shortage of AdBlue that is an essential component for the modern, EURO6 diesel engines. I can assure you that due to our strong strategic partnerships with major fuel companies,
   AdBlue availability is guaranteed for Waberer's however we also cannot avoid the price increase.
   However, we also see the first signs of consolidation on the market as new players are entering the AdBlue production market and traditional AdBlue manufacturers are also expected to relaunch the production soon.

IV. Last external challenge I would like to talk about is the global supply chain fluctuation. The effect of it on our operation is a bit more indirect compared to the previous 3 items, I just described. However, the fluctuating order volumes by our manufacturing partners are also caused by the global supply chain turbulence. However, we do believe that in long term either the global logistics process will be cured or supply chain processes had to be geographically shortened that could generate additional business opportunities for Waberer's in case several manufacturers move back to Europe from its current Far-East Asia locations.

Slide 9:

Barna Erdélyi (Bod member):

And now, I would like to ask Szabolcs to dig into the details about the financials and show the financial performance of both the Group and the Segments.

Slide 10:

Szabolcs Tóth (CFO)

Thank you, Barna. I also welcome everyone on the call.