Autoneum Holding AG (AUTN) Earnings Call Transcript & Summary

Ladies and gentlemen, I am pleased to welcome you to our analysts and media conference. I look forward to sharing an overview of the financial year 2024 with you. The first part of my presentation will be followed by our CFO, Bernhard Wiehl, who will provide more details on Autoneum's 2024 financial results. I will then share our outlook for 2025 before we move on to the Q&A session. Please remember that this conference call shall not be recorded. In 2024, we once again achieved important milestones and made further progress in various key areas. Most importantly, we have met all the financial targets we issued in our original guidance from March 2024. This is a real achievement considering the overall challenging environment of our industry. Revenue in local currencies grew by more than 4%, resulting in a consolidated revenue of just over CHF 2.3 billion. In addition, Autoneum recorded the highest level of order intake in its history in 2024. Our EBIT margin reached the higher end of the guidance with 5.3%, which is 1 percentage point higher than in the previous year. And finally, our free cash flow was with almost CHF 110 million, even slightly above our guidance. Thanks to this positive financial performance, the Board of Directors will propose a dividend of CHF 2.8 to the Annual General Meeting, which corresponds to an increase of CHF 0.3 compared to the previous year. So let's look at the factors that made this result possible. First, I would like to thank all our employees and stakeholders for their hard work, dedication and trust. We truly have a great team and many excellent people at Autoneum. Already 2 years ago, we started to optimize our footprint and adjust the organization to a more volatile industry setup, flexing our production capacities and cost structure is essential to secure our competitiveness. In addition, we continued our consistent but fair price renegotiations with our customers in line with the changed market reality. And last but not least, we were able to improve in several other areas, including our operational efficiency, our innovation process and of course, in our performance in North America. This allowed us to clearly reconfirm the turnaround in this business group. The foundation of every company and its long-term success are solid guidelines and a strategy that are adapted to the market and its requirements, together with a strong execution. We introduced our new purpose, vision, mission and values as well as the new corporate strategy at our Capital Markets Day last October. In parallel, they were rolled out globally to ensure that they are not only understood by our employees, but also lived in our daily business. We received a lot of positive feedback from our locations across the world as well as from our external partners, and we feel confirmed in our conviction that we are on the right path in this respect. In our focus region, Asia, we also realized important milestones, the creation of a local research and technology center in Shanghai and of course, the signing of the master transfer agreement with the owners of Jiangsu Huanyu Group in November 2024. With this transaction, which was completed about 2 weeks ago, Autoneum is getting immediate and important access to Chinese OEMs in China, which have become the key players in this market for all vehicle types, including battery electric vehicles. This will help to strongly improve our position in the world's largest automotive market. Furthermore, Chinese car manufacturers such as BYD are also expanding their production footprint to other regions. Autoneum, together with Huanyu, can support them globally, both inside and outside of China, which will prove beneficial to all our business groups in the medium term. Finally, the opening of 2 new plants in the important automotive hubs in Pune, India and in Changchun, China will also contribute to reaching our medium-term target of increasing the share of Asia in our group revenue to 20%. As promised at last year's CMD, we would like to share with you another highlight of 2024. We have achieved a significant increase in our 3-year rolling order book. The cumulative awarded lifetime sales of 2022, 2023 and 2024 have reached now CHF 7.8 billion. As we continuously update our order book with the latest market data, it is unfortunately just short of the CHF 8 billion initial target. This is only due to overall lower market volumes according to the latest S&P forecast of January 2025. However, it has significantly increased versus the CHF 6.4 billion of last year's order book. We will continue to remain focused on further profitable growth. The 2024 record order intake of CHF 3.2 billion lifetime sales is a first but great step towards achieving our ambition of a CHF 3 billion annual revenue for the Autoneum Group. The high order intake underscores how well we are positioned with our customers as the market and technology leader. Finally, our order intake was well balanced across all regions and all product families. A special highlight was the very successful order intake with our commercial vehicle customers, which confirms our strategy to have a special focus on this market segment. As a responsible company, employer and manufacturer of components for the automotive industry, we are not only committed to financial success, but we also consider ourselves as a leader among our peers in other areas such as sustainability. In line with this, we aim to be the global leader for innovative and sustainable solutions in acoustic and thermal management of vehicles. Our Level Up strategy defines clear ESG initiatives, including developing eco-friendly products, introducing new products for electric cars, working with suppliers to become more sustainable, creating a road map to achieve net zero emissions and zero waste and helping employees align with Autoneum's vision and values. Some of the main achievements you can see on this slide, but I would also like to encourage you to have a look at the comprehensive corporate responsibility report, which we also published this morning. And now I would like to hand over to Bernhard, who will guide you through the financial results of 2024.

Thank you, Eelco, and good morning to all of you attending online. It is no secret that the automotive industry was facing some major challenges in 2024. However, by focusing on what we can influence ourselves as a company and as a supplier, we nevertheless managed to achieve a very positive result. I will now provide some more details on Autoneum's key figures. Let me start with the revenue bridge. In local currencies, group revenue rose by around CHF 36 million or 4.2%. This positive development was supported by inorganic growth resulting from the first-time full year consolidation of Borgers Automotive, which contributed with over CHF 160 million to the top line at group level. Since most former Borger plants are in Europe, Business Group Europe benefited most from this acquisition-related growth. However, Business Group North America and Asia also recorded some inorganic increase in revenue. While the nearly CHF 27 million in Business Group North America were generated through business with third parties, the inorganic growth of the some CHF 3 million in Asia is almost exclusively due to the intercompany business related to purchasing activities there. Organically, revenue in Business Group Europe declined by around CHF 34 million or 3.2%, but still exceeds vehicle production volumes in the region, which declined by 4.1%. With an organic decline of 1.7%, Business Group North America developed roughly in line with the market, which dropped by 1.5%. Revenue development in Business Group Asia was once again impacted by the significant increase in market share of Chinese vehicle manufacturers compared to Western and Japanese OEMs. Organically, revenue declined by around CHF 40 million, which underlines the importance of the acquisition in China, as already mentioned by Eelco. We are very positive that the takeover will enable us to counteract this negative trend. Business Group SAMEA once again reported a great development on the top line. However, we need to bear in mind that this increase is significantly impacted by inflation effects. In terms of production volumes, Business Group SAMEA was pretty much in line with the market, which recorded a slight decline of 1.6%. Revenue at corporate level remained almost flat. In terms of earnings, operational improvements that we achieved in 2024, particularly in North America, were once again the main reason for the significant increase at group level. In Business Group Europe, EBIT grew by nearly CHF 12 million, which is, on the one hand, reflects the positive impact of footprint adjustments that were implemented in 2024, for example, the consolidation of the plants in Krumbach and [ elsewhere ] in Germany or the closing of the production facility in Halesowen, England. On the other hand, Business Group Europe made further progress operationally, including a headcount reduction of around 7% and delivered a strong performance regarding successful price management. Business Group North America not only confirmed the turnaround in 2024, but also managed to take another important step towards the targeted EBIT margin of 5%. This was achieved, thanks to continuous operational improvements such as successful scrap reduction, a more efficient allocation of staff and a consistent price management. Considering the significant drop in revenue in Business Group Asia by over CHF 40 million, the decline of just CHF 9.5 million in EBIT reflects the active and successful cost management within this business group, which resulted in a very solid EBIT margin of 8.6%. Business Group SAMEA once again reported the highest EBIT margin of all business groups. This is mainly due to the continuously efficient and stable operational performance and the consistent price management in a market environment characterized by high or even hyperinflation. Let's now move on to the income statement. Revenue grew by around CHF 36 million compared to the previous year, which resulted in an increase in EBITDA of some CHF 20 million. EBIT, on the other hand, rose by some CHF 26 million. As we would usually expect a conversion rate of revenue into EBIT of around 20% to 25%, above-average increase in EBIT is due to operational improvements, footprint adjustments and a strong focus on price management. It also reflects the further progress we made in Europe and in North America. The 2024 financial result improved by CHF 7.8 million, which was mainly caused by the reduced interest expenses due to lower debt levels and lower interest rates. Additionally, the financial result was driven by the expenses related to our leases, which tend to develop in a fairly stable manner. By contrast, gains and losses from the revaluation of the balance sheet items in foreign currencies can vary considerably from year-to-year and also had an impact in our financial results. Including the impact of hyperinflation accounting under IAS 29, we recorded a net foreign currency impact of minus CHF 15.1 million in 2024 compared to minus CHF 15.6 million in the previous year. Income tax expenses returned to a normal level since the 2023 effective income tax rate was positively influenced by the nontaxable bargain purchase gain, which resulted in a relief of around CHF 17 million. Basic earnings per share declined slightly because of the capital increase since the net profit was attributable to a higher average number of outstanding shares compared with the prior year period. This brings me to the cash flow statement. When we compare the 2024 free cash flow with the previous year, we need to consider that free cash flow in '23 was greatly impacted by the one-off net cash outflow of CHF 96 million for the acquisition of Borgers Automotive. On a comparable basis, free cash flow in '24 was with almost CHF 110 million below the 2023 level. This decline was mainly driven by the following factors. Investments in tangible assets increased compared to the previous year, but were still below the depreciation. Overall, we are well on track to achieve the investment level of 4% to 4.5% of revenue that we need for our business model in the longer term. In this context, we also need to consider that the net working capital of Borgers Automotive was exceptionally high when we acquired the company in early 2023. Its reduction to a normal level over the course of the year supported the free cash flow in 2023. Nevertheless, free cash flow in 2024 also reached a triple-digit figure and exceeded the guidance we issued in March 2024. This underscores our continuous focus on cash flow and the overall capacity of our business model to generate cash. Let's now have a closer look at Autoneum's main positions and key figures in the balance sheet. Naturally, the solid EBIT as well as the triple-digit free cash flow further strengthened our balance sheet. For several items in the table, the values reported in Swiss francs were boosted by foreign currencies such as U.S. dollar, Chinese yuan and euro. Thanks to our active management of net working capital, this remained on a solid low level. The moderate increase was driven, among other things, by the usage of provisions for the footprint adjustments and foreign currencies of around CHF 3 million. The decrease in cash and cash equivalents need to be considered in relation to the development of our borrowings in 2024. Overall, net debt decreased to CHF 399 million. With this decrease, the net debt-to-EBITDA ratio further improved to 1.6. Together with the equity ratio of now 37%, we consider our balance sheet to be solid and well suited to our business model. In this context, let me say a few words about net debt. Those of you who have been following Autoneum's financial activities for some time know that generating solid free cash flow and reducing net debt have been among our top financial priorities for several years. I'm very pleased that we are able to significantly and consistently reduce our net debt over the past few years. The improved profitability and solid free cash flow give us the freedom to act as we need to further develop Autoneum and seize opportunities that may arise among our competitors. For smaller transactions that may arise today, we have a substantial liquidity reserve from the unutilized portion of our long-term syndicated credit facility of CHF 219 million as of December 31, 2024. However, we want to be prepared for further potential opportunities on the horizon. Therefore, the Board of Directors will propose the creation of a capital band to the shareholders at the Annual General Meeting of April 2, 2025. The cornerstones of this proposal are as follows: shareholders will be asked to authorize Board of Directors to increase the share capital by issuing up to 2.9 million new shares. The purpose of this capital band increases limited to the acquisition of companies or parts of companies, participations, financing and other strategic transactions. The capital band will be valid for 5 years, which means until April 1, 2030. For further technical details, please refer to the invitation to the Annual General Meeting, which have been available on our website since this morning. In conclusion, let me have a look on our medium-term financial targets. As Eelco already outlined, we are well on track to achieve our revenue target of CHF 3 billion in the next few years. We have not yet reached our targeted EBIT margin, but we are confident that we will do so in the foreseeable future, thanks to growing production volumes and our strong focus on operational excellence and lean cost structures. Our free cash flow in 2024 is very close to the targeted at least 5% of revenue, and we see no reason why we should not reach this target. The same goes for the leverage ratio, which at 1.6 is already almost at a targeted level. This concludes my part of the presentation. Thank you very much for your attention. I will now hand back to Eelco, who is going to present the outlook for 2025 and an overview of Autoneum's strategic priorities.

Thank you, Bernhard. Thank you. You may recall our Level Up 168 strategic program, which addressed 6 short-term priorities that we started to tackle in early 2023. After its successful completion in 2024, we designed our new strategy, Level Up, which we rolled out globally in October last year. Just as a reminder, let me briefly summarize its 6 pillars: shape a future-fit product portfolio, innovate to create customer value, accelerate global growth, foster a people-centric culture, be the sustainability benchmark and boost cost competitiveness. For each of these pillars, we created a comprehensive implementation plan and continuously measure our achievements against specific predefined targets. For today, I would like to focus on the following 3 pillars: shape a future-fit product portfolio, accelerate global growth and boost cost competitiveness. Our global innovation network, including our new R&D center in Shanghai and our specialized new mobility team are working closely with our customers to continuously develop our technologies and products further. To give you some examples, in 2024, we launched further fully recyclable interior products made of 100% polyester and developed several product innovations around the battery housing. Another example of our outstanding technical competencies is our contribution to Renault's sustainable demonstration car, Renault Emblème. In 2024, Autoneum contributed over 30 environmental-friendly components for the vehicle interior and exterior as a key partner in this flagship decarbonization project. All of these activities are part of the strategic pillar, shape a future-fit product portfolio. I already talked about Asia in the first part of my presentation. We made progress last year, but our strategic focus of accelerating growth in this region remains in place. Main drivers will be the acquisition of Jiangsu Huanyu, further potential M&A opportunities, the cross-selling of products, which were not yet available in this region and our expansion of the truck business. In terms of cost competitiveness, we are continuously working on reviewing and optimizing the bill of materials of our products as well as our manufacturing processes. We will also continue to assess our footprint against the future market needs. Other drivers for profitable growth will be a higher level of standardization and a more globalized approach in purchasing. This leads me to the overview of the priorities we have set for each of our 4 business groups for 2025. Europe is expected to maintain the level of profitable order intake we saw in 2024. Another task will be to balance the footprint of this business group with the structural market development. And as in all other business groups, we need to work diligently on our sustainability KPIs. In North America, we expect to take another significant step towards an EBIT margin of 5%, which is required to meet our group medium-term target of an EBIT margin of 6% to 8% over the cycle. The second task includes the rollout of new technologies such as Copilot in this region. This will boost our revenue by realizing the full potential of parts that are currently sold only in low volumes. Our main task in Asia will be the customized integration of Jiangsu Huanyu Group in China. This will be done in several phases and over several years. While we plan to realize synergies and potential for optimization quickly in purchasing and operations, the current top management and sales organization of Jiangsu Huanyu will remain in place and enjoy a certain independence in order to demonstrate continuity to our Chinese customers. Developing technologies and parts adapted to the specific needs of the Chinese market is another priority, which will support an above-average growth rate. In SAMEA, which for us is Brazil, Argentina, Turkey and South Africa, we also see potential in expanding the products offered in these regions, mainly carpets, trunks and parts for trucks. We also expect to continue to successfully navigate the challenging environment of inflation, especially in Argentina and Turkey, and continue to pursue vertical integration in our plants. And finally, our corporate organization will drive profitable growth, advance innovation and foster a people-centric culture, fully in line with our Level Up strategy. Let's now have a look at the market environment. The latest production forecast for the full year 2025 expects a flat development globally with volumes under pressure in the first half year and a recovery in the second half year. From a regional perspective, Europe and North America may have to deal with shrinking volumes, while in Asia and in the rest of the world vehicle production is expected to further increase. Taking all this into account that what has been said before, we present the following guidance for the financial year 2025. According to the latest market forecast, automobile production we'll show no growth in 2025. Consequently, Autoneum expects revenue of CHF 2.3 billion to CHF 2.5 billion for the financial year 2025, which includes the acquisition of Jiangsu Huanyu Group effective as of February 28. Based on the expected revenue, Autoneum anticipates an EBIT margin of 5% to 6% and a free cash flow of around CHF 100 million for the 2025 financial year. This excludes the one-off net cash outflow for M&A transactions. With this, I would like to conclude the presentation part of today.