Bertrandt Aktiengesellschaft (BDT.F) Q3 FY2025 Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and I warmly welcome you to today's earnings call of Bertrandt AG following the publication of the Q3 figures for the financial year 2024/2025. I'm delighted to welcome CFO, Markus Ruf, as well as Head of Investor Relations and M&A, Bjorn Voss, who will speak in a moment and guide us through the presentation. Afterwards, we will move over to our Q&A session in which you will be allowed to place your questions directly to them. And having said this, Mr. Voss, I hand over to you.

Yes. Good afternoon, ladies and gentlemen. Also a warm welcome from our side. And I think with this, we will directly start with the presentation. I will share the screen in a second. So give me please a second. And now Markus, the floor is yours.

So thank you for your introduction. So we have published our 9 months report this morning. And you can see the entire automotive industry is under pressure, particularly due to declining sales unit in China and especially the tariff discussions with the U.S. So we have seen a lot of profit warnings last week, and we see further cost optimization programs from our customers. But on the other side, we see huge pent-up demand for R&D project. So we see a lot of projects in the pipeline. And I think also positive, we are able to win 2 major projects with a duration of 5 years in the defense sector. And today, we see also a continuing trend towards relocation of R&D projects, but with more international approach. And Q3 was the most difficult quarter in terms of working day. We had only 59 working days in Q3 and also additionally some one-off items with around about EUR 5.5 million, especially a provision for penalty payment in France and currency expense was around about EUR 1 million. But you can see all cost items down. And also, we implemented additional measurements. And for example, last week, we removed the level of division manager who reported to the Board. So we optimized the whole management level last week. And so we are on the way. And some highlights from our customers. So Porsche announced in their management report that Porsche postponed the SSP 6 platform and everybody in the group is waiting for the decision and for the platform. So it's not easy for all. And also, we see the Cycle Plan is not finally in the decision, but we expect especially from Porsche, the final decision about the Cycle Plan at the end of August. And I think it is helpful for all and for clear projects in the future.

Yes, I think these press articles show you that, generally speaking, the R&D market is not in a bad shape, but we have some customer-specific issues, especially within the Volkswagen Group because of, let's say, postponed platform developments and decisions they are simply not taken to invest into special models, and this is causing also the underutilization, at least to a certain degree also on our side. And I think these 2 articles are nicely expressing and showing what is happening in one customer group at the moment.

And I think additionally, this morning, [ BM, VW ] announced 40 new models and the new E-Class. So it's also, I think, interesting for you. So on the next slide, you can see sales down by 19%. So we were able to achieve EUR 742 million. Employees 12,672, so minus from 12%. EBIT from minus EUR 39 million, but including one-offs from around about EUR 12 million and in the third quarter, EUR 5.5 million, as I mentioned. Positive free cash flow from plus EUR 17 million and equity from EUR 316 million and a stable equity ratio from 41.5%. So as I mentioned, the Q3 was -- or is the weakest quarter in our fiscal year. So we were able to achieve EUR 226 million sales, so year-on-year means a decline on that from 23%. EBIT from EUR 25 million, so based on only 59 working days and the EPS from minus EUR 2.87. Free cash flow from minus EUR 11 million, which is normal for the Q3 and CapEx from only EUR 2.6 million. Q3 revenues down by EUR 69 million. So based on under-capacity utilization. So the capacity utilization is only on 84% level, so it's too low. And so we see also that we are acting, so we reduced our employees from 14,400 to [ 12,600 ] over all divisions and over all services, also admin and management level. And on the right side, you can see so the Q4 will benefit from more working days, 5 or 6 more working days and also from further cost savings in Q4. So from our F3 cost optimization program.

Maybe one additional remark from my side. We have not only seen a reduction in revenues in Germany like in the other quarters, but now in that quarter also in the rest of world, which is basically driven by France. We have one project ended in the last quarter in France. And in that project, we also had lots of external services. So this is one reason also why we've seen a 24% reduction in revenues globally, as I said, predominantly because of France, not a general trend. In other foreign markets, we are still growing or at least developing stable. But yes, especially in France, was affected by lower external services, which is also seen in the material expenses line.

So diversification is part of our group strategy. And so you can see since 2010, 2010 we received only 2% outside from automotive revenues and now we are on the way to 25%. And as I mentioned, we were able to win 2 major projects in the defense sector. And I think we are optimistic in this area in aerospace and defense, but also in health care and medical because based on a [indiscernible] contracts with Siemens Healthineers with Sanofi, with Roche, I think it's a really good basis to grow in the future.

And as Markus already said, we have already received a very, very sound new order in the defense area, which should enable us to significantly increase our footprint in the aerospace defense industries over the next years.

Five years, yes. So EBIT development. So as I mentioned, so impacted by capacity underutilization, but also all cost items are reduced in line with sales trend, except for personnel expenses due to costs linked to short-time work. And we have special items from around about EUR 12.7 million. So especially France, payment penalty in France, also for additional restructuring costs in the first 9 months, so in total, EUR 12.7 million. And so we see the current headcount secures service, know-how and competencies, we have to balance that because we see a lot of projects in the pipeline. And so we have to balance on one side cost optimization from the personnel cost. On the other side, we see a lot of projects in the pipeline. So we need the capacity and we need the capabilities in the future. And we will see also more saving benefits in our cost optimization program. And today, we see more than EUR 90 million.

Maybe one remark also from my side here. The fine which we booked the provision for in France is linked to an antitrust decision by the French antitrust authority, affecting us and 3 other engineering services providers. We will appeal against this. And yes, let's see what will happen in the future. The fine amounted to EUR 3.6 million.

And the reason for the penalty is an e-mail from a competitor who said, hey, we have a gentleman's agreement to not hire employees from each other. And so that is the basis for the penalty. So now we are appealing against the penalty.

Yes. And in fact, we haven't done it, and there was no benefit for us or for the customer. But based on this mail, which we didn't agree, let's see what will happen.

But it takes time.

Yes, looking into the segment development, you see that especially year-over-year, we see a reduction in the Digital Engineering segment. This is caused by missing new projects at the moment. The Physical Engineering segment is rather stable over the last quarters. In Electric/Electronics, we have seen quite a significant decline quarter-on-quarter, but this is based on intrasegment sales. So Q2 this fiscal year was inflated by intrasegment sales for the Digital Engineering Services. These numbers here are gross figures, and we are eliminating them in the reconciliation line. But if you just look at the numbers, you might be surprised. But yes, as I said, it's linked to intrasegment sales.

So as I mentioned, we are on the way with our cost optimization program. So especially redundancy program, but also the optimization from infrastructure costs and structural costs. So there are more than 250, 270 single measures. And for example, we optimized around about 26,000 square meters, and we will see a further effect in the Q4 because some rent contracts are finished at the end of June. And also for the Powertrain Solution Center, so partly idled and we see all options are on the agenda. And so we see the next hearing is in September on the court, and we will see what happens. And as I mentioned, so the optimizations will exceed the value of EUR 90 million, so we are optimistic. So profit and loss. So we have optimized our largest cost factor of personnel costs, but not in proportion to the decline in total output. And you can see the sales down by minus 19.5% this year also optimization in personnel costs. But I think we are missing around about between EUR 90 million and EUR 100 million total sales on a normalized capacity underutilization, but you can see all other cost items are optimized. So stable balance sheet. So we see equity from EUR 316 million and equity ratio from 41.5%. So cash is around about EUR 100 million on a fine level and also working capital measure works really well. So we see and we expect also a stable fourth quarter. Forecast for fiscal year. So we see weak economic environment burdening in Germany. And we see also high demand on international R&D volume, and we see also going more international. So that's the reason why we open or will open a new site in Mexico, also in Sweden. We see also capacity call-offs still sluggish and volatile, and we expect a normalization in H2. But we have won some projects in the last 2 weeks, especially from BMW last week. And so as I mentioned, Q4 will benefit from more working days and additional cost optimization savings, so we are optimistic for Q4. And we see in total, the R&D demand is on a really high level especially in midterm. So our forecast, I think the same like as we mentioned in the 6 months report. So total revenues significantly down year-on-year. So it means more than minus 10%. EBIT significantly up year-on-year, positive value uncertain, especially after the third quarter. Positive operating cash flow and we see with a normalized capacity utilization and especially the savings from our cost optimization program, it is possible to receive between 6% and 9% EBIT margin level. So summary and outlook. So the market is really challenging. And so we see the underutilization in Germany and abroad, especially in France. The EBIT is impacted by underutilization and special items, as I mentioned, but we see also positive benefits from our cost optimization program. We have a solid balance sheet with a cash position and with the equity ratio from 45.1% and we expect a normalization in H2 and as sooner so better, especially for capacity utilization, but we are optimistic also based on open RFQ level for more than EUR 4 billion. So thank you for your attention. Now we are ready for your questions.

[Operator Instructions] We received the first hand from a person who has dialed in with the phone number ending 809.

This is [indiscernible] speaking from [indiscernible]. Can you hear me?

Yes.

Regarding the EUR 12.7 million one-offs, if I'm not mistaken, this is a year-to-date figure. Could you please give the details in which P&L lines have they been booked and in which quarter? This is a detailed question, I hope I'm trying to...

Yes. No problem. Markus, shall I?

Yes, sure.

Yes, we have booked EUR 1.9 million for a customer insolvency in the first quarter, it was in France. We have booked the EUR 3.6 million.

In which line? In which line was that?

Operating expenses, operating expenses.

Other operating, okay.

Yes.

The second one is also on other operating expenses. It's the EUR 3.6 million fine in France, which was booked in the third quarter. And then we had in the third quarter, as Markus said, EUR 1 million FX losses because of the euro appreciation versus the dollar.

So in the financial results? Or where is it booked?

No, it's also in the other operating expenses line. And then we had in the personnel expenses line, provisions for additional restructuring measures, which were not covered under the Fit for Future program. So we have done more than just the Fit for Future measures in the last quarters. They were basically equally split over the last 3 quarters, the EUR 6.2 million. For example, eliminating one management line for additional headcount reductions in sites or in subsidiaries, we have last year not expected to lay off people there. So basically additional layoffs and restructuring charges there.

Okay. Good. And second question would be, how many working days did you have in Q3?

59. 59 in Q3 and 65 in Q4.

The amount of working days always depend on the exact number of headcount in our different countries. So we make a judgment at the beginning of the year, how many people we would probably have in the different countries. And then when the quarter is over, we look at the exact number of people in the respective countries because every country, even every state within Germany have different working days. And then in the end, we know what the exact number of working days was in our most recent quarter.

Okay. And the next question would be a rather general one. So basically, the operating loss, if we are correct for the EUR 13 million, was minus EUR 26 million year-to-date. And of course, on the last year's Q4 provision was certainly -- the impairment was certainly a one-off, but in Q3, you already lost minus EUR 7 million. And you've showed the articles on Page 3 of your presentation, basically arguing for further pushouts and uncertainty and so on. Now we have the tariff situation. I mean what is like the management stance regarding the general business prospects? We know each other since a long time, and you've been stagnating since basically '17, '18, right, growing very fast before that, now almost 7 years of stagnation. And are there -- is there any -- what's your view on that? Is there any kind of inflection point visible from your point of view at some point in time?

So first of all, we are in daily and monthly communication dialogue with our customers with each management level. And today, we see there's no shift of externalization from Engineering Services. So we see further there's more volume, and we have today more than EUR 4 billion open RFQs. And we see there are a lot of projects in the pipeline. And as I mentioned, so if they decide the life cycle plans, then we will see the projects are coming. And so today, we see there's no shift. And so we see there's potential for the future and also outside from automotive.

And maybe a last question here relating to this. I mean this is something which you have said over and over again, right? So it's always pushing out and -- but your sales in Digital Engineering, they are down 28% in Q3 and then 31% in Q2. And so it's basically -- you say they are coming, but -- and you've seen we said this one year ago, but instead, we are 30% down. So you still used to basically [Foreign Language] in German, I don't know the word in English. But at some point you probably need to -- at some point, you probably have to rethink your approach, right, because you're burning money and making losses.

So I see where you're coming from, but we are in dialogue with the R&D departments. And honestly, the R&D department will start the project sooner than later because they are under pressure for the future. And today, we see not a shift, and we see there are a lot of projects and there are concrete offers in the pipeline. So we see this volume, but we are also shifting to more aviation and defense, you are right.

But, [indiscernible] I think we can totally understand your view because, I mean, Markus and me and all of us in the organization are also looking at that way. Our customers tell us the R&D departments, yes, we have the projects. We have done lots of specification catalogs and so on. But finally, these projects are simply not executed. And this is why we have shown you also the press articles, some customers -- I mean, it's not a general market issue, but some customers are postponing and delaying their decisions. And you are right. We are not -- we have waited a long time for our customers to come back. But in the end, last year, we took the decision to restructure our business. I mean we have laid off more than 15% of our German workforce in the meantime because we are -- we will not wait anymore or simply wait. We have now taken more measures by eliminating one reporting line. But we have now reached a level of headcount that we can't really lay off more people because we have to ensure our capacities because the projects are there. We have given prices to the projects. And when some of our customers now decide, yes, we will start with, I don't know, Project X, we have to get -- or we have to be there, we have to have the people there. And this is what we're doing in the moment, reducing the costs, looking at costs and yes, talk to our customers that sooner or later, they have to start the projects.

So the next person will be Sebastian [indiscernible]. So please go ahead and ask your question. Unfortunately, we cannot hear you. Yes, unfortunately not. But in the meantime, we have no further questions. So ladies and gentlemen, if there are still topics you would like to discuss, just let us know. Okay. So let's try again with Mr. [indiscernible]. In the meantime, he says there's some technical issues. [Technical Difficulty]

I have more details about the defense contracts. Yes, that's the funny thing about defense. We can't really talk. I mean generally speaking, we can't talk about our contracts. But I think, Markus, you were -- we can tell you that it's linked to physical testing.

Exactly. Validation of equipment, yes.

Yes. I think the size, it's a triple-digit million euro number split over 5 years, low triple-digit million euro number split over 5 years for military equipment.

All right. So Mr. [indiscernible], we hope this answers your question. And let's wait a couple of seconds. So maybe another virtual hand pops up or we receive a further question in our chat box. But it seems everything appears to be answered by now. So this means we come back now. Okay, final reminder was a good one. So we move on with a question from Matthias [indiscernible]. So please go ahead.

Do you hear me? It's Matthias from Trigon.

Yes.

Okay. Perfect. Unfortunately, also some technical issues. The defense question, the answers I just got partially. Are there more in the pipeline? And will you give more color going forward on these projects? And what can we expect maybe in 1- or 2-years' time in terms of revenue share or even profit share?

So first of all, it is ongoing. So we are in negotiation with all main potential customer in the defense area. And we are also a part of the [indiscernible] Industry Association. So we are really well linked to the management level. And we see there are a lot of projects, but honestly, now they are organizational models to organize external services. And I think we will see in the next 2, 3 years much more, but it's difficult to say in which volume. But today, we see it's also possible to work in the electronic and software area, especially for IT security, but also in the CID area to develop new surfaces and also interior or exterior but also in the physical segment.

And I think we have shown you on Page 7 of the presentation that we -- that we look for a 15% revenue share in aerospace defense in 2 years' time, up from 6% at the moment.

Yes. You're right.

And is it fair to assume that the profit margin is much higher compared to automotive?

Today, yes, yes.

Great. Maybe a further question on your shareholder structure. I mean, Porsche is still 29% shareholder, if I'm not wrong. I mean, are there any plans even on Porsche side? Will they keep stable? Or is it possible to acquire the stake, for instance?

We have now other information. I think new is Porsche is that in the Supervisory Board. So we have a new member, Martin [indiscernible], so he is now part of the Supervisory Board from Porsche since the last week. So they will work more on the strategic side together with the Chairman Board.

Does it still make sense for Porsche to be a key shareholder of Bertrandt Aktiengesellschaft?

Yes. So the intention in 2000 was to have access to an engineering service provider in case if they need more capacity. So it makes sense for Porsche, especially because our engineering hour is much cheaper than an internal hour from Porsche.

Makes sense. Did you see a lot of projects from Porsche coming in?

We are expecting, but first, they have to decide their life cycle schedule, and that will be at the end of August.

Right. And how will you manage actually the ramp-up? I mean, will we see like also margin pressure because you will be forced to hire people, which you previously had to basically release?

So the intention is to hire additional people outside of Germany, especially in Morocco, in Romania, in Turkey and India, and we are ready. And I think it's possible to scale up 1,500, 2,000 employees. That's not a real problem because there are a lot of CVs. We have the IT infrastructure, so we are ready.

But Matthias, this is one of our issues at the moment. Although we have released 1,700 people, we still only have a utilization rate of 84%. And we would need some projects to increase the utilization. So yes, we are using short-time work at the moment. So I think we should manage also any kind of ramp-up. And then based on a very lean cost structure we now have, we think to get back to the 6% to 9% margin level based on a higher utilization.

Sounds great. Looking forward to that.

And then we have a follow-up from [indiscernible].

I have a question. We've seen this Chinese car, Yangwang, I think SU9 or U9 or so with this new suspension system allowing it to jump around or very actively keep the car in place when it goes through turns and so on. And for once, it seems that the Chinese are really attacking the very heart of the German cars, which is how it drives through corners and how it behaves on the racetrack and how it balances in the corners with the suspension system. And can go very fast over bumps in the road, actively absorbing any impact. Just out of curiosity, was there any reaction from your customers like Porsche or Audi, where they basically said, holy macaroni, this is really an attack on us? Or was it basically ignored? Or what was the reaction from them?

I think you should ask them to be honest. I think they take the Chinese OEMs very seriously, like they have done with, I don't know, Hyundai and Kia in the mid-10 years. So I'm pretty sure that they look at it very seriously, but they don't talk to us about it. So we can't really comment on this.

But I think let's come to the motor show to Munich in September. I think there are a lot of Chinese OEMs and a lot of European OEMs. I think then we can see a lot of reaction and answers to your question.

So in the meantime, we did not receive any further questions. So we, therefore, come to the end of today's conference call. So thank you, everyone, for joining and showing interest in the Bertrandt AG. From my side, I wish you all a lovely remaining Monday. Should further questions arise, I guess, Bjorn Voss is available. And I hand back to you for some final remarks.

Yes. Thank you very much, everybody. Thank you for your patience and your interesting questions and the discussions. Have a good holiday season now and looking forward to talk to you soon in September at all the conferences. Bye.

Bye.