Aumovio SE (AMV0) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Aumovio SE Pre-Close Call Fiscal Year 2025. [Operator Instructions]. Let me now turn the floor over to your host, Lutz Ackermann.

Yes. Thank you, operator, and good evening to all of you. This is Lutz Ackermann speaking. On behalf of Aumovio, I wish you a very warm welcome to today's pre-close call ahead of our fiscal year reporting 2025 and on 18th of March and the quiet period, which begins on February 16. This call is intended for sell-side and buy-side participants. If you do not belong to either group, we kindly ask you to disconnect now. Today's call is designed to ensure all market participants have equal access to the latest publicly available information regarding Aumovio's performance. The key points we discussed are also available in our reference sheet, which we just published on the IR section of our home page. As we are closing the fiscal year 2025, I'd like to highlight the achievements that Aumovio has made since the successful listing in September. We made progress in advancing our transformation strengthening the performance culture and increasing the agility of the company. The inclusion in the MDEX marked an important milestone end of December. We take this progress as a starting point and look ahead of confidence as we continue to develop Aumovio with the aim of realizing the company's value creation potential. Starting with the market environment. According to our latest market intelligence and external data providers, global light vehicle production saw a slight increase by 1% in the fourth quarter. However, there are differences from a regional perspective. While Europe and North America declined by 1.4% and 0.5%, respectively, China continued to grow by over 3%. As Europe still represents close to 50% and North America, close to 1/4 of our group sales, sales development was impacted by the regional trend of each region. Additionally, we remain committed to pursuing only those projects that contribute positively to our midterm profitability targets. We already mentioned at our 9 months reporting that the build-to-print business in A&S, which we wound down and that had a negative sales effect in 2025 versus the prior year. Contract manufacturing, which we will largely phase out in 2026, also had a negative sales effect in 2025. Portfolio effects as reported before, were the divestments of Cairo Montenotte and Zonar, which also had a negative impact on sales year-over-year. Currency effects were largely dominated by a stronger euro and had a negative impact on the sales development year-over-year as well. Overall, the sales development in the fourth quarter is well reflected by our current guidance for sales in fiscal year 2025 from EUR 18 billion to EUR 19 billion.. On the earnings side, our continued focus on self-help measures to which I will come back later, again, contributed also positively to the earnings development in the fourth quarter. As a reminder, the year-end quarter is always the strongest from a seasonality perspective, and it includes the majority of customer reimbursement. After standing at 2.9% adjusted EBIT margin for the first 9 months of 2025, the current outlook is to reach the upper end of the guidance range from 2.5% to 4%. Implicitly, that means the year-end quarter was again seasonally the strongest. The impact of tariffs remains limited due to our high share of USMCA compliant imports. We're continuously working on sustainable solutions with our customers and expect to recoup the tariff burden over time. We do not expect a major impact on our business results. Free cash flow generation is a high priority Aumovio, and we consistently stated out our ambition to achieve positive adjusted free cash flow in 2025. In this context, let me remind you of the roughly mid 3-digit million amount in cash effective one-off costs for restructuring and spin-off that we had to absorb in 2025. Excluding these onetime effects, we can already see the underlying cash generation potential of Aumovio at this stage of the transformation phase. With regards to this, I would like to draw your attention to the latest update on our transformation process from January 27, in which we announced additional measures to strengthen the competitiveness of our global research and development activities. These measures include a reduction of up to 4,000 headcount worldwide which is expected to be largely completed by the end of 2026, subject to negotiations with works councils. By focusing our R&D spending on value-creating technologies, expanding development partnerships and implementing further efficiency measures we are reaffirming our goal of reducing the R&D to sales ratio to below 10% by 2027. The measures will primarily affect Aumovio locations in India, Singapore, Romania, Serbia, Germany and Mexico. For our site in Germany, we anticipate a need to reduce positions in the high triple-digit range. I would also like you -- like to remind you of our announcement from February 18, 2025. So pretty much a year ago regarding our transformation program. At that time, we communicated a reduction of around 3,000 R&D positions worldwide to be completed by the end of 2026, with less than half of these reductions taking place in Germany to put both announcements into perspective, there is no overlap between the 2 measures. From the 84,500 employees at the end of the third quarter, it is a fair assumption that the reduction of roughly 800 employees per month which has been announced at our Capital Markets Day last year, has continued until the end of 2025. For the new R&D announcement, we have not yet disclosed the financial impact as we are only entering negotiations with the employee representatives. The cost savings expected for 2026 will depend on how quickly the programs will be executed. As a result, we will not yet see the full effect of savings in 2026. Most of the savings will materialize in the following years. The fact that part of the reduction was employees in best cost countries also affects both the level of achievable savings and associated cash outflow. Overall, we are taking strong and decisive steps to improve the robustness of the company's profile. We are bringing R&D spending down to a competitive level and further streamlining our global footprint. We are gradually shifting production to best cost countries in building a financially resilient company. As a result, we are becoming a leaner, more efficient and performance-oriented company. Now let me please give you an update on how we see the current trading conditions regarding price increases in raw materials and memory products. We have observed significant price increases in raw materials relevant for Aumovio, including steel, aluminum, copper and silver. However, for most of these materials, we have sustainable solutions with our customers to cover such increases. For example, by indexation agreements. We are confident that these mechanisms will allow a fair cost sharing. While we were able to realize efficiency gains across a significant portion of the procurement portfolio, prices for memories, including DRAM and AMD, particularly have risen sharply. Importantly, we have already secured volumes and to a large extent, also prices for 2026, and we continue to address these effects, amongst others, by adjusting our pricing structure to reflect market conditions. Overall, we consider the situation manageable. Looking ahead into 2026, we have already indicated that the earnings momentum is expected to come more from cost efficiencies and margin improvement potential and from top line growth. That concludes my prepared remarks for today. And now I'm happy to take your questions. Please limit yourself to 2 questions so that we can ensure everyone has a chance to participate.

[Operator Instructions]. The first question comes from Christoph Laskawi of Deutsche Bank. Over to you, please.

The first one would be just on the communication of the guidance on the high end of the range. Would that mean basically at the high end or towards the higher end and the latter being sort of like a 3.7% to 4% range? And the second question would be just in terms of building blocks for '26, what you've shared so far in the meetings more recently? And also, would it be fair to assume that you need to take a provision of, call it, EUR 150 million for the 4,000 people that you look to restructure and roughly a similar amount just spread over a couple of years in terms of cash out for that program?

Yes. Thank you so much, Christoph. So with regard to guidance, it's clearly that we stated to come out at the upper end of the guidance range. And I think pretty much that what we have seen in the fourth quarter should be in line with that. So I think nothing more to say about that. So it's basically in line with the expectations. And if it comes down to the restructuring cash outs that we have, for sure, we announced so far for the old program, so to say, that we see a restructuring cash out of EUR 150 million in 2026. I mean with the additional measures that we have announced now, it's clear that there would yes, some more restructuring cash out comes on top. We have not yet laid out how much that will be. But of course, that amount will be a bit higher. Will it be higher than the restructuring cash out we have seen in 2025? That has to be seen. But yes, it will be probably a bit higher than the number we disclosed so far.

Then we are moving on to the next question. The next question is from Jos� Asumendi of JPMorgan.

Just a couple of questions. The first one, Have you provided any additional comments in the past week with regards to the cost-cutting actions that could be implemented in the medium term to improve the profitability of UAX and AM? And then second, out of the, I think, 3,000 workers, I think you mentioned by the end of 2026 in R&D, how much of those 3,000 workers have been already been laid off? And how much is left?

Yes. Maybe starting with the last question that you have. So I mean, to be very clear, both announced programs that we have, I mean, last year, we announced a program pretty much a year ago and now as well. So these are 2 programs which are independently from each other. I think with regard to the reduction, the only thing that I can say is basically that we had -- if you take an average, you had per month roughly a reduction of 800 headcount. And I think that gives a good idea of how this rate has developed into the end of 2025. And also, if you look into 2026 and beyond, I think that gives you some kind of an indication. It's always a question of how quickly we ramp up. This is why it's difficult to give you an exact timing and an exact number of reduction per month per year. But I think the run rate I just spoke about is basically the best thing you can think of. If it comes to the reduction that we announced, it's basically across all units that we have. For sure, you have some areas where you have per se or by definition, a higher share of R&D people allocated, but it's basically across all of the units.

[Operator Instructions]. The next question is from Horst Schneider, Bank of America.

I want to get back what you said on the chip prices, DRAM prices and that you have got pass-through clauses and you can pass it on partially, you said, I think. So that means that you need to carry part of the costs? Or is there really an automatic pass-through or basically every, I don't know, contract needs to be negotiated. That's what we know from the years '23, '24 which meant in the end that you could pass on a large part of the cost. But of course, then we had a very weak H1 versus a strong H2. Is that something we should expect also then for 2026? So some more color on that would be great.

Yes. So basically, I mean, what I said is that we have covered all the volumes and prices to a very high extent. I mean the question is always what time of -- what point in time do you take? I mean, what are we talking about? I mean, is it like -- to which point in the year we have fixed those prices, and that's always a question. So I think, first of all, on the volume side, that's very positive for us, and we are aiming for everything of it. I mean -- but that's the normal course of the business. If it comes to compensation of those costs of those higher costs that you face, you always go for the whole increase, yes. So that's the normal course of the business. I mean we have seen that also over the last years, and that's always something that you have to negotiate with. So you're looking to approach your customers and try to compensate as much as you can. And I think we have been quite successful in that. It may have a timing effect. But overall, we have been quite successful in doing so, and this is the same as we expected this time.

I don't know if that goes far my question, but nevertheless, I try. If you could maybe quantify your chip purchase volumes per annum, what part of that is DRAM? And to what extent you see market prices moving up? I just try.

I mean one reference that I can give you, I think you all are aware of, let's say, the top 10 purchases of DRAM. If you look into the S&P study that they basically -- which you are aware, you can see that Aumovio is not amongst the top 10 purchases of DRAM. So I think that's basically what you can see. For sure, there's a certain exposure. But again, the impact that we may face is also depending on what time you are looking at. I mean it's like the status quo or the pricing from a point in time, which it was earlier. It's a little bit depending on that. So this is why I'm shy of giving quantify that effect.

Yes. Okay. Then more housekeeping item. That's the last one from my side. You talked about special items. I think you only talked about full year. I don't know, some guidance on Q4. I'm not sure if I missed that and you mentioned that if yes, sorry, but if you have further more details.

Yes. I mean what I wanted to make clear is that we are streamlining the portfolio on a daily basis, and we are very much focused on only continuing projects on which we earn money and where the margins are in that regard where we want to see them. So this is always a bit difficult to announce that in advance. It's more also of the cases that you look -- afterwards can say, okay, these are the projects that we have stopped or these are the projects that we have wound down. And when we have the reporting, we will give you some clearer picture on that, how much of the projects we have stopped and not continued.

At the moment, there are no more questions in the queue. [Operator Instructions]. All right. A question from Vanessa Jeffriess from Jefferies.

I was just wondering on the fourth quarter, was all the compensation you received just normal R&D in the normal course of business? Or was there any kind of compensation for canceled programs in the U.S.

I think what I can say is that overall, if you look into reimbursements, you know that the fourth quarter is always the quarter where you see most of them. And this determines also the seasonality that you have throughout the year. And I think I made earlier also the statement that in 2025, it should not have been different compared to years before. So the pattern is basically as it was in the year before.

Okay. So you're not expecting any of that compensation in [indiscernible]?

Yes. I would only refer to reimbursement as a whole, not specifically on cancer projects.

Okay. And then just wondering if you could talk a bit about order intake in the fourth quarter and if you still saw that kind of postponement to '26?

Yes. That should have been an okay-ish quarter. So a bit of a continuation of that what we have seen in the third quarter. So it was overall an okay-ish quarter. For sure, there are some regions where it was a bit better, it was a bit weaker. But overall, there was an okay-ish close of the year. For sure, within certain areas, we see that some of the projects are postponed or let's say that the final award of projects is a bit postponed. But overall, it's clearly that we see a very healthy project pipeline, and this is unchanged.

There is also a follow-up from Horst Schneider from Bank of America.

I was just getting enthusiastic about the R&D cut number that you were saying. So 7,000 people, I don't know, I would say, I should assume EUR 100,000 salary per R&D worker. Or is that a too high number? So it sounds like a terrific saving you were getting in, in the next 2 years.

Yes. I think on the savings side, up to you what kind of calculations you make, but I think it's fair to say that this time, if you look into the cost cutting, it's fair to assume that the salary per worker is maybe a bit lower than that as there has been a higher share of people that are leaving the company in best cost crunches. So I think compared to former programs, maybe the salary is a bit lower than the number you are taking.

Okay. But that materialize over 2 years, you said, right? So it's not just straight, of course, in 1 year. So it materializes over time. So we should pencil in a part '26 and it's going to be finished in 2027, correct?

I mean it's always a ramp-up. And I think it's important to understand that the negotiations with the unions are pretty much starting. So we, for sure, try to achieve as much as we can in this year. So I would rather say it depends on the ramp-up of the program execution. I think it's also fair to say that the majority of the effect is coming beyond 2026 as then the full impact will take place.

I guess it's the first program, I think, was 3,000, that's probably 260 and the 4,000, that's a higher shares than in '27, right?

I mean for the current program we just announced, we are striving for getting that executed as much as we can in this year. But the effect, I mean, you always have to look into the point in time when people are leaving. So the effect on the numbers is rather beyond this year, but we try to execute that as much as we can in 2026.

All right. Thank you.

Since there are no questions in the queue, I am closing the Q&A session now and handing the floor back over to the host.

Yes. Thank you, operator, and thank you for everyone participating in today's call. Just as a reminder, the quiet period stops next week on 16th of February. Over the next days, you will be approached by [Vara] with our external service provider for compiling our consensus, and we highly value your input and your contribution to that. With that, I'd like to conclude today's call. Thank you, and have a nice day.