Bertrandt Aktiengesellschaft (BDT) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and a warm welcome to today's earnings call of Bertrandt AG following the figures for Q1 2024-2025. I am delighted to welcome the 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 and the figures. Afterwards, we will move over to our Q&A session, in which you will have the possibility to place your questions directly to them. Having said this, I'm handing over to you, Mr. Voss.

Yes. Also from my side, a warm welcome to today's Q1 earnings call. We will have a discussion later on. But with this, I will hand over to Markus, who will guide you through the figures.

Thank you, Bjorn. So first of all, let's start with the key figures from the first quarter. And the first quarter developed as expected and as communicated, and we achieved around about EUR 266.5 million in the first quarter. And so it's similar to the previous quarter Q4, the third calendar quarter '24, and in comparison to the first quarter year-on-year, so minus 13.6%. But we see the first positive impact from our cost optimization program. So in the EBIT line, we see the last quarter, the previous quarter was minus EUR 7 million, now minus EUR 2 million. So we are on a good way. Employees, 13,605. And we reduced capacity, in particular in Germany and also further growth abroad. EBIT, as I mentioned, minus EUR 2.1 million, but including a one-off from EUR 1.9 million, a write-off from our a receivable and a year in comparison to the Q4, we see much better. Q4 was with minus EUR 7.5 million adjusted without our one-off costs and in comparison to the Q1 is more clear. We started really well in the last fiscal year, and the first quarter was the best quarter in the last fiscal year. Really positive. We generated a strong free cash flow from EUR 38.2 million, and we have a strong equity with more than EUR 361 million and the equity ratio from 42.3%. So the automotive crisis continued in the whole year 2024. And I think we have seen a lot of profit warnings from OEMs and also from system suppliers. And we see a lot of R&D budgets in the pipeline but we see also lead time, and we see for the future higher R&D volume and really positive for Bertrandt. So really forecasted new R&D expenditures from EUR 320 billion. So they expect a further growth. And I think this is also in line. Porsche announced last week higher R&D expenditures. They will spend more money in R&D because there is more need for new models and also for more new technology. So as I mentioned, we see total sales are similar to Q4, Q3. So I think it stabilized in this view. But clear also, there's an impact from the underutilization. Today, the capacity utilization is around about 88%, and we expect a normalization with the beginning of the second half year, with the beginning of April and May. And now we see there are a lot of decisions in the pipeline, especially about the cycle plans. And cycle plans, we expect the decisions in February and in March.

Maybe to add, we have experienced another reduction in terms of revenues in Germany by 20%. While, again, our foreign subsidiaries continue to grow, only at 3%, but this is still quite nice even when compared to the Q4 and Q3 levels.

So we achieved an EBIT from minus EUR 2.1 million, but including a special item, a write-off of insolvency from a French customer, who -- which Renault holds a 50% stake. So 1.1 -- EUR 1.9 million one-off. So adjusted, we have red -- black zero. But I think important is in comparison to Q4 and Q3, we see a first impact from our cost optimization program. So after minus EUR 7 million in Q4 and Q3, so we are in a much better way. And we see EBIT stabilized in Q1.

Thank you, Markus. Looking at our segment reporting. You see that almost all segments were impacted by lower revenues year-over-year. But the Electronics and Digital Engineering segments have also stabilized quarter-on-quarter. The reduction in the Physical Engineering segment is also linked to the partial idling of the powertrain testing centers, which we have announced in summer last year. So we still had some revenues in that segment from the test centers in the last year. But yes, as we communicated, we have partially idled it and also -- and continue to generate now the cost saving benefits of, on a full year scale, EUR 8 million to EUR 10 million. And as the revenues were down quite significantly in the physical segment, we couldn't cover all the fixed costs, which is basically D&A in that segment, and we couldn't really offset this by short-time work quite naturally, in contrast to the other segments where the missing revenues could be partially offset by short-time work, which is not the case in physical.

So let's come to our cost optimization program. So we are on track. So we have more than 200 measures identified, and every measurement is tracked in a tool. And we see also we agreed a redundancy program with the personnel representatives in the South part of Germany, and we implemented all the fast-track program in Wolfsburg. And our clear intention is to finish program until the end of March. And the intention is really clear, let's start with optimized cost structure in H2 and also with the full impact for the fiscal year '25-'26. So let's come to the profit and loss account. So total sales, as I mentioned -- and we see also cost optimization for personnel expenses because based on the reduced workforce capacity, and we see also in the operating expenses, we see all the optimization. And adjusted from the EUR 1.9 million one-off, we see all the cost savings from 10%, and this is also helpful for the future. So the program is ongoing and we can see the first positive impact in our profit and loss statement. So stable balance sheet. So working capital optimization also. And we see also a higher cash position with EUR 138 million based on optimized working capital and also strong equity with EUR 361 million and equity ratio from 42%, and we see also optimized gearing with 47%. So let's come to the forecast for the fiscal year. So you see economy and political environment burdening in Germany, so we are really hopeful for the next voting. And we see also ongoing and accelerated transfer of R&D into international locations. And we are also in China, in dialogue with our customers, especially VW Group. We founded a new subsidiary in Hefei for Audi. And we are also, in the United States, in dialogue with new brand from VW Scout and also with Rivian joint venture from VW for software stake in the U.S. So I think it's an ongoing process, but we are well positioned. And we expect normalization of our capacity utilization with the beginning of April, May and we expect product and project decisions in February, in March. And then we expect a higher capacity utilization with -- for the second half year. Then normally disclaimer, external factors is clear, geographical trends and so on. I think it's the same disclaimer like last time. Helpful for Bertrandt, regulatory requirements. Competitive and innovation pressure drive investments in R&D. And we -- mid-term -- and as I mentioned, we see a lot of signals and a lot of measures, and everybody expects higher R&D volume for the future. And we hope for a normalization with the beginning of H2. So our RFQ volume we see, in comparison to the previous year, our RFQ volume is even higher, EUR 9.7 billion to EUR 9 billion. Only we are waiting for the decisions, and the decisions come later. It needs time. But today, we expect more project volume for the next months, as our customer announced. And we see also higher R&D budgets, but we see also a lot of budgets outside from Germany, abroad. And the intention is clear. Let's get a major part from the new decision. So in total, we confirm our guidance. And we expect our revenues moderately decline compared to the previous year; and we expect a much better EBIT, especially positive for '24-'25; all the positive operating cash flow. And with the finalizing from our cost optimization program and with high utilization, our intention is clear: let's come back to EBIT margin level between 6% and 9% in '25-'26. So in summary, the first quarter as expected -- developed as expected and communicated. We see continued growth internationally. There's much more potential also for Bertrandt. EBIT was also much better in comparison to the previous quarter, and including a special one-off item. And we see also the first positive impact from the cost optimization program in our profit and loss account. We have a strong balance sheet. We have a strong cash position. And we expect positive development with the beginning of H2. So thank you for your attention. Now, we are ready for your questions.

[Operator Instructions] And so far, we have no question yet.

Then we made a good job, answered all questions already.

[Operator Instructions] And there is the first one. How much of the planned run rate of EUR 70 million to EUR 90 million of cost savings were realized in Q1 already?

So in Q1, really a small block because we have the personnel costs in the profit and loss account. And it was only a small cost, I think, around about EUR 5 million or EUR 6 million. And we expect a major impact in H2 because we will finalize the program -- the redundancy program until end of March, and then we will see the impact in the second -- H2.

So maybe one remark from my side. We haven't used any of the provisions we've booked for the restructuring program yet. So the headcount reduction we have realized was basically driven by normal fluctuation, some negotiations here and there. But out of the EUR 50 million provisions we've booked last quarter, we haven't used anything yet.

There's the next question. Can you remind me, please, on the reason for idling the test centers? Will this be permanent?

This is open. So we are discussing the capacity utilization and the demand with our customers every month. So this is open. And today, we are in negotiations with customers for more capacity and for more projects, but this is open. But today, it was -- last year, it was a decision to save costs and to reduce the losses.

And at the same time to safeguard our capacities if, in the European Union, we might see a renewed discussion about the ICE ban. Because when this will happen, this will probably come along with tighter or different emission standards, so that you can use our test centers again maybe sooner than later. So from our point of view, it was a good idea to just idle them, not to, I don't know, scrap them or sell them, but to keep the capacity and take a wait-and-see approach how the European Union will react towards the ICE ban.

And following, what is the remaining book value and balance sheet risk of the remaining test centers?

Around about EUR 9 million of the book value, but this is on a safe level, I think so. So there's no more risk for Bertrandt because this is on the way, so for maintenance.

And was the profitability of the test centers in Q1 already on the new run rate after idling? Or are you expecting an incremental improvement in Q2?

So in the first quarter, we received losses from around about EUR 1.52 million, and we expect further optimization in the next month.

Why do you believe projects that were put in pause will be relaunched in February or March 2025?

Because we received the information and the clear statement from our customers. They will decide the cycle plans in February and in March, and we received also some inquiries for those. So we see now it is coming.

I mean, some of our customers who have delayed these projects were in kind of a restructuring mode last year. They had to redefine the entire group strategy with regards to e-mobility and so on. So they were concentrating on their general group strategy. They were negotiating with unions last year. And as they have settled everything in December, they now can concentrate on products and models again. And to be honest, after delaying projects by 1 year, they need to speed up because the competition isn't sleeping. The innovation pressure isn't sleeping. And it's really a question of time that they will, yes, release these projects so that they come to the market with new and better products.

And on downsizing German operations, does Bertrandt own any real estate that may no longer be required and therefore sold?

Yes. We have our own facilities, clear, and we are checking this the whole year. And maybe this is one open topic for the next 9 months.

And one question. To clear up, what exactly are cycle plans?

Cycle plan is the plan who the customer decide model 1, model 2, model 3, model 4 in which period.

Sorry. Now our customers, of course, don't only decide on, I don't know, the next 1 or 2 years which models will be launched in the market, but they have a 10-year cycle plan. So they do the platform development first and then they have an idea what kind of car will they place on these platforms. And this is called cycle plan. So they are currently defining what model should come in the next 2, 3, 4, even in the early 30 years.

And why do you think that VW will still use BDT while they are investing in other players like Rivian and our software JV in China?

So we are a strategic partner for VW and this is a completely different business model. Rivian is a software company and they invested in the whole software solution. We are a partner for implementation for the new software, for validation, for software testing, for development, from HATS and so on. So completely as a different group here, and this is additional potential for Bertrandt.

The Rivian and XPENG partnership in China, it's linked to the platform development, something they have done in-house or together with its subsidiary, CARIAD, which is -- which wasn't always successful in the past, to put it that way. And this is the reason why they went into the partnership. So this is -- these partnerships are linked to the platform and E/E architecture development. While we are engaged as soon as these platforms are ready so that we can make any kind of derivative development or integration work into new cars.

What is the percentage of your sales done on projects around SDV technologies?

Software-defined vehicles.

Difficult to say because of overall divisions. It's difficult to say.

So far, we have received no further questions. I will hold the room another moment. And sometimes, it's clear and fast. So thank you for joining and your interest in Bertrandt AG. We are coming to the end of today's earnings call with one last question. Can you guide us on EBIT trajectory? Will you be breakeven in Q2?

I think it's too early to say. So as I mentioned, so Q2 is also under pressure. And we expect a recovery with the beginning of Q3. So it's still early to say.

But it's pretty clear that our fourth quarter, as it used to be in the past, will be the strongest one, especially as we will have finalized the restructuring program. We have probably a better utilization. And of course, we have the most working days. So it's -- we can't really provide you with the trajectory, but it's for sure that Q4 is decisive and will be significantly better than the former quarters.

And are you able to do the same business in China as in Germany?

Yes, of course, because there's also need -- demand for CID construction, also for software, also for software development and testing. This is also possible.

Okay. Thank you so much for your presentation and the time you took to answer the questions. Should further questions arise, please feel free to contact Mr. Voss. I wish you all a lovely remaining Thursday. And with this, I hand over again to you, Mr. Voss.

Yes. Thank you very much. Thank you very much for all the questions and for the trust in Bertrandt. And if there are some follow-up questions, just give me a call or drop me a mail. And I'm looking forward to see at our Capital Markets Day on May 15, and we will send out invitations quite soon. Thank you very much.

Thank you. Bye.