Aumovio SE (AMV0) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the AUMOVIO SE Pre-Close Call Q2 2026. The conference will be recorded. [Operator Instructions] Let me now turn the floor over to your host, Lutz Ackermann.

Yes. Good evening, everybody. This is Lutz Ackermann speaking. On behalf of AUMOVIO SE, I wish you a very warm welcome to today's pre-close call ahead of our second quarter 2026 results, which will be published on August 6 and the quite period, which begins tomorrow on July 7. 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 at this time. 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 discuss are also available in our reference sheet, which has been published on the Investor Relations section of our website. As we approach the publication of our second quarter results, I would like to highlight the continued progress AUMOVIO has made since becoming an independent listed company. Over recent quarters, we have advanced our transformation, strengthened execution discipline, improved operational efficiency and continued to sharpen our portfolio. We view the current phase as an important transition period that lays the foundation for sustainable value creation and future growth. According to the latest S&P Global's mobility data that you all know, global light vehicle production declined by 1.8% year-over-year in the second quarter. Production was weaker across all major automotive regions, with Europe down 3.3%, China down 3.1% and North America 1.4%. The ongoing geopolitical tensions in the Middle East further contributed to an environment of elevated uncertainty for the global automotive industry. As Europe continues to represent around half of our sales and North America close to 1/4, our business remains exposed to market developments in these regions. At the same time, China remains an increasingly important market for AUMOVIO. We have recently continued to gain market share and grow with our customers in the region while maintaining an attractive profitability profile. As a result, market developments in China remain relevant for our business. Overall, second quarter market conditions, therefore, remained challenging and broadly in line with our assumptions for 2026. Similar to previous quarters, our sales development continues to be influenced by regional production trends, portfolio measures, the phase out of lower-return business activities and foreign exchange movements. Foreign exchange effects remained a headwind in the second quarter, however, at a lower level than observed in the first quarter. From a sales perspective, we currently expect second quarter revenues to be broadly in line with the sales level of the first quarter, which was at EUR 4.4 billion. On the earnings side, our continued focus on self-help measures, operational improvements and restructuring execution continues to support profitability. As discussed previously, we continue to expect the second half of the year to be stronger than the first half. For the second quarter, we currently expect adjusted EBIT margin to show sequential improvement versus the first quarter of 2026, which stood at a margin of 2.4%. At the same time, profitability is expected to remain somewhat below the prior year second quarter margin of 3.5%. This development is primarily driven by the timing difference between cost increases and customer compensation mechanism. During the second quarter, we experienced a larger spread between higher costs on the one hand and realization of compensating customer recoveries on the other hand. While these cost increases are already reflected in our results, the corresponding compensations will increasingly materialize over the coming quarters. As a result, we expect reimbursement levels and cost recovery effects to increase during the second half of the year and thereby, provide additional support to profitability. This is also in line with previous years where we achieved the necessary cost compensation in the outer quarters. Additionally, let me also remind you of the typical seasonality pattern of our business. Usually, profitability improves sequentially throughout the year, with each quarter showing higher margins than the previous one, and the fourth quarter being by far the strongest quarter from a profitability perspective mainly based on R&D reimbursements. The year 2025, so the last year, represented an exception to this pattern as the second quarter profitability exceeded third quarter profitability due to an unusual high contribution from customer reimbursements during that period, which were predominantly coming from user experience. The underlying trajectory, therefore, remains fully consistent with our expectations of improving profitability over the course of the year. Overall, business development in the second quarter is broadly in line with our expectations and is underpinning our current outlook for the financial year, which we reiterate. On tariffs, the impact from tariffs remains limited due to our operational footprint and the high share of regionalized production. While the situation remains dynamic, we are continuously working on sustainable solutions with our customers and expect to recoup the tariff burden over time. Where applicable, we follow refund mechanisms with the relevant authorities. Free cash flow generation remains one of the highest priority at AUMOVIO. While cash generation in '26 continues to be impacted by restructuring and transformation-related payments, the underlying cash-generating profile of the business continues to improve. During the second quarter, we continued to see encouraging trends in spending discipline across the organization. Both capital expenditures and overall cash spending remained under tight control, reflecting our continuous focus on efficient resource allocation and value creation. We have also continued to make progress in managing net working capital, which remains an important lever for cash generation and financial flexibility. At the same time, it is important to remember that the second quarter is seasonally affected by annual bonus payments, which represent a recurring cash outflow at this point in the year. Overall, we remain focused on working capital discipline, portfolio optimization and improved earnings quality in order to further strengthen cash generation over time. With regard to our transformation program, execution continues according to plan. We remain focused on reducing complexity, increasing productivity and bringing our cost structures to a competitive level. The successful sales of our German plants in Rheinböllen and Karben are further proof to our disciplined execution and continued focus on delivering the measures we have initiated. Another key objective is the ongoing R&D transformation, where we remain on track to reduce our net R&D to sales ratio to below 10% by 2027. We continue to focus our development resources on technologies with the highest value creation potential, intensified collaboration with ecosystem partners and implement additional efficiencies across our global R&D network. While portions of the financial benefits will materialize gradually, we remain highly confident in the medium-term value creation potential of these actions. Overall, we are taking decisive steps to improve the robustness of the company's profile. We continue to streamline our portfolio, improve competitiveness and position AUMOVIO for the sustainable profitability improvements. As a result, we have become a leaner, more agile and more performance-oriented company. Now let me provide an update regarding raw materials and memory products. We continue to observe elevated volatility in a number of raw material markets. However, for most raw materials, we have sustainable solutions with our customers in place that help mitigate the impact of raw material market volatility over time. Let me now turn to another topic that has remained in focus across the automotive chain over the recent months, memories. Memories remain an important part of products across the automotive industry, and therefore, naturally also for AUMOVIO. We are one of the key purchasers of semiconductors in our industry, and therefore, also of memory chips. At the same time, given our portfolio profile, we are not over-indexed in memory content relative to the broader market. We remain in very strong relationships with our suppliers and have secured our supply requirements for 2026. As it is customary in our industry, we are already discussing 2027 requirements in close coordination with both customers and suppliers. We see additional challenges ahead. We remain confident in ability to navigate them successfully. We, therefore, as we have done during previous raw material and semiconductor cycles, continue to work with our customers on sustainable solutions to address current memory cost developments. With some customers, agreements have already been concluded, with others, discussions are ongoing, and we expect to make further progress over the coming months, as I highlighted in the beginning. Before concluding, let me briefly address capital allocation. Over the past months, we have developed a comprehensive capital allocation framework, which is now subject to ongoing discussions with our Supervisory Board and other relevant stakeholders. We remain committed to implementing an attractive capital allocation framework that supports long-term value creation, preserves financial flexibility and provides a compelling framework for shareholder returns. That concludes my remarks for today. And now I'm happy to go to the Q&A with you. Please, operator, take over for the moderation of the Q&A session.

[Operator Instructions] And we have the first question from Christoph Laskawi from Deutsche Bank.

The first one would be, was there any discussion more recently in conferences or roadshows that you've made on the potential impact of footprint reduction and active portfolio management on Q2 revenues? Have you sized that at any opportunity? And then the second one would be on capital allocation. You mentioned that this is an ongoing process. Could we expect an announcement to be made with Q2 or potentially even before the Q2 results? And then the last question will be, I'm not sure if this is really one for today or more for the final Q2 announcement, but we've seen Ford and GM partnering with Micron looking to direct source memory. Obviously, this would take out the sourcing risk that you have. Was there any comment of management on this potentially reducing the exposure in the future?

Thank you, Christoph, for your questions. Maybe first of all, on the phase out of projects, I think it's still in the assessment how much of projects we will phase out. But it's fair to say, if you look at the last year, in 2025, that it was EUR 0.5 billion roughly of projects that we stop or did not continue. In the fourth quarter, it was a bit lower. So maybe in second quarter, we will see slightly higher number of projects that we phase out, but we are still into, let's say, finally collecting the numbers, so difficult to give you a ballpark number here, but that remains part of our strategy to really phase out projects where we do not earn money on. So it's clearly the case that we prioritize margin over our volumes that do not contribute to our targets. That's the clear approach. Then on capital allocation, it's the plan to do that with half year's reporting. I think we, since a while, are working on that, and I'm pretty convinced that it's a convincing framework that we can present. Nevertheless, it's important to have all stakeholders aligned to have them in -- yes, on our side, so to say. I think it's important to do that in an orderly manner. So this is why I cannot fully promise, but I think this is the plan to come up with that within the half year's reporting. Yes, this is the plan, but I cannot fully promise. I think that's important to say. Then on the last one with regard to the GM-Micron announcement, difficult to say. I mean, generally speaking, this is what I wanted to point out earlier that, at the moment, it's not only about speaking to our suppliers and to our customers, I think it's about to speak to both parties to really find a solution for the price increases that we see. And this is overall the approach to bring all the people together on one table to find a solution. So if that's positive, I think neutral, maybe slightly positive, but let's see that. I would not overestimate that announcement and how far that affects us. One thing is clear that the more alliances you have, the better [ it probably is ].

[Operator Instructions] And we have 1 question from Jose Asumendi from JPMorgan.

I had a question. When you look at the comments, conferences and meetings you've done in the past weeks, were there any comments with regards to the profitability of AM or AMC, autonomous mobility? It's always difficult to -- honestly, to forecast this division. How should we think about were there any comments with regards to Q2 with regards to maybe a sequential improvement in losses Q2 versus Q1? Or do the losses remain still on a high level? Or were there also any one-offs in Q1 when we think about AMC that we should bear in mind when we're thinking about the progression into the second quarter?

Thanks, Jose, for the question. So on ACM, I think -- I mean, it's fair to say that you should see -- I have seen a slight improvement versus the last year, but we have to be clear that it's from a very low base. So that's not really -- they are not really moving the needle in terms of year-over-year progression. But I think at least there should have been a stabilization, which is positive. And as you all know, the large ramp-up is coming with end of next year when the Aurora contract is picking up. But for the time being, I think this is an okay-ish second quarter from then what we can see so far. If you ask about one-offs, that's basically what I tried to say earlier. I think if I go through the business areas for the second quarter, there's only user experience. They had a slightly higher -- not slightly, they had a higher share of reimbursements in the second quarter of last year. And of course, this is a bit normalized in this second year's quarter (sic) [ year's second quarter. ] So this is why we see also margins for the group to be a touch light of last year. And yes, this is -- I mean, it's not a real one-off, but I think sometimes you really have to look into the reimbursements, how they are allocated to the quarters, and this was a bit of the case. So this is what I wanted to -- I would highlight in terms of one-off, although it's not the definition a one-off.

Got it. And were there any comments in the past week with regards to on a full year basis, whether we're tracking on the lower end or the midpoint or the high end of the margin guidance for '26?

You mean for AM, or you mean for the group?