CT Automotive Group plc (X7X.F) Earnings Call Transcript & Summary

Today's presentation will cover 4 sections: highlights, financial results, business review and outlook. I'm Simon Phillips, Chief Executive Officer and Co-Founder of CT Automotive. Since 2000, I've led the company's evolution from a tooling specialist into a global serial production partner. Joining me is Salman Mohammed, our Chief Financial Officer. Salman brings international manufacturing finance expertise and is a chartered certified accountant with a strong background in financial strategy and commercial support. For those new to CT Automotive, we specialize in interior trim components for the global automotive industry. We focus on kinematic components, facial finishes, general wrapped panels, in-car lighting and electronic actuation. By kinematic parts, we mean components that move within the car, such as air registers, armrests and deployable cup holders. This is a niche segment with high barriers to entry. Once our products are integrated into a vehicle, they generate stable long-term revenue, typically around 6 years of production. What differentiates CT Automotive is our deep vertical integration and technology-led cost structure. We manage everything in-house from design and tooling to injection molding, subassembly, wrapping, painting and final assembly. This vertical model drives down cost, increases speed and gives us full control over quality. We also operate in some of the lowest cost regions globally, including our administrative center in India. By combining vertical integration with digitization, automation and AI, we are able to win business on both price and performance. Our customers include some of the most iconic automotive brands in the world. We supply to volume manufacturers such as Volkswagen, Renault-Nissan, Škoda, GM, Ford and Fiat. We're also working with some of the most exciting new EV companies, including Rivian, Togg and Vinfast. In the premium segment, our products are found in vehicles from Bentley, Lamborghini, Lotus and Audi. CT Automotive supports a broad spectrum of OEMs from high-volume platforms to luxury and next-generation EVs across every major global region. Three major forces are reshaping the industry, the electric vehicle transition, the rise of Chinese automakers and global tariffs. CT Automotive's drivetrain agnostic model, flexible production and nearshoring in Mexico uniquely position us to win market share and meet evolving customer needs. Artificial intelligence is transforming every aspect of our operations from production to human resources. This shift drives cost savings, accelerates digital transformation and aligns with customer expectations. Innovations like AI-driven planning, quality control and multilingual avatar videos give us a competitive edge.

In the first half of 2025, CT Automotive delivered revenues of USD 54.1 million, reflecting timing adjustments to customer program launches and market volatility arising from tariff changes. Importantly, long-term production volumes remain unchanged. Gross profit margins rose 290 basis points to 30.5%, driven by AI-led automation and digitization. Adjusted profit before tax was USD 4.2 million, in line with investments to expand our Mexican facility and global sales operations. While net debt temporarily increased to USD 12.1 million, it normalized to $7.4 million in July, and we expect to close FY '25 with a net debt position between USD 9 million and USD 10 million. We are positioned for a strong second half and remain on track to meet full year profit targets.

The first half of 2025 has been a highly productive period with 8 new program awards worth USD 37 million annually. Four of these came from customers relocating production to Mexico to leverage the U.S.-Mexico-Canada agreement. We expanded our global sales team now active in every major automotive region, driving our request for quotation book to all-time highs. We invested USD 3.4 million in our Mexico facility, adding 15 injection molding machines and an automated paint line. Our China facilities lead in piloting artificial intelligence and digitization, while we also strengthened our commitment to carbon emission reduction through certified offsetting partnerships. All 8 new programs secured in the first half of 2025 represent significant progress, 4 relocations from competitors and 4 entirely new launches. These are expected to commence in late 2026 and are focused on air events, wrapped assemblies and gators. This reflects the return on investment in our global sales infrastructure. Our current request for quotation pipeline is more robust than ever, extending across all major regions and supporting our long-term revenue outlook.

Revenues reached USD 54.1 million with $50.1 million from production and $4 million from tooling. Gross profit was USD 16.5 million, representing a 30.5% margin. Operating expenses reduced to USD 8.1 million and adjusted earnings before interest, tax, depreciation and amortization improved to USD 8.4 million. Profit before tax stood at $3.4 million, while adjusted profit before tax reached $4.2 million after accounting for nonrecurring items. Net assets rose to USD 29.8 million. We increased tangible fixed assets to support growth, and our inventory and receivables also rose, reflecting strong business activity. Net debt temporarily increased due to timing but normalized in July 2025. Revenue for the first half of 2025 was USD 54.1 million compared to USD 60.5 million in the same period last year. The decline of USD 5.9 million was primarily due to the natural conclusion of 13 programs, partially offset by the contribution of 9 new programs, which added USD 7.5 million. Recurring program volumes were also slightly lower, reflecting customer launch timings, resulting in a USD 2.6 million impact. By geography, China contributed USD 36.3 million, Turkey increased slightly to USD 8 million and Mexico grew to USD 5.8 million. Tooling revenue decreased modestly to USD 4 million. However, we expect full year tooling revenue to exceed full year 2024. Despite the overall reduction, this shift reflects a healthy transition in our portfolio with new wins beginning to scale and strengthening our global diversification, particularly in Mexico, where we are seeing growing demand aligned with strategic investments. Gross profit margins improved from 27.6% as at December 2024 to 30.5%, representing a 290 basis point increase. This improvement was primarily driven by strategic efficiency gains, most notably from the full year impact of automation and artificial intelligence initiatives implemented in prior periods. These include robotics-driven assembly, enhanced quality control systems and ERP integration, particularly across our China operations. Further margin enhancement came from optimizing our production footprint. The relocation of key programs to our lower-cost facility in Gangzhou significantly reduced unit production costs. Additionally, supply chain rationalization and improved commercial terms contributed to cost reductions on materials. These gains were partially offset by union-led wage increases in Turkey, which added pressure to labor costs. Margins were also modestly affected by project mix and the fixed overheads, which remained constant despite a temporary reduction in sales volumes. Nonetheless, we expect gross margins to improve further in the second half, exceeding FY '24 levels as volume ramps up and cost efficiencies compound. Adjusted EBITDA increased from USD 7.4 million to USD 8.4 million in the first half of 2025. This $1 million uplift was achieved despite a reduction in revenue, highlighting the strength of our cost management initiatives. Material, labor and quality cost savings contributed approximately USD 1.2 million, reflecting continued benefits from AI-driven efficiencies and manufacturing optimization. Administrative costs were also lower, supported by a central payroll saving of USD 0.5 million and additional plant level fixed cost reductions. These gains were partially offset by USD 1.8 million in margin loss associated with lower production volumes. Freight and duty costs also rose due to changes in tariffs, and we saw a favorable FX swing from a USD 0.7 million loss to a 0.3 million gain, mainly attributed to our trading balances on the balance sheet. Overall, after removing any FX-related gains and losses, EBITDA remained stable as we maintained profitability with increased margins, disciplined cost control and strategic operational improvements. Net debt rose to USD 12.1 million, largely due to $1.5 million in capital expenditure in Mexico and $1.9 million in lease repayments and interest. Operational cash flow of $6.4 million was offset by customer payment delays impacting receivables. The delayed customer payment was received in July 2025, which normalized our net debt position to $7.4 million. We expect to finish the year with net debt between USD 9 million and USD 10 million as we continue to invest in growth opportunities in Mexico.

Tariffs are reshaping the global automotive landscape. For CT Automotive, they've catalyzed customer engagement and new business, especially in Mexico. We've invested USD 3.4 million in capacity expansion to meet this rising demand, positioning our Mexican facility as a key supply hub under the U.S.-Mexico-Canada agreement framework. Our China facilities are leading our artificial intelligence and digitization transformation. By leveraging robotics, enterprise resource planning integration and artificial intelligence-based quality control, we've achieved over 1,000 basis points of gross margin improvement in 18 months. These technologies are being rolled out across our global network to enhance efficiency and responsiveness. In injection molding, artificial intelligence planning has replaced manual labor, cutting changeover times from 2 hours to just 15 minutes. This delivered a 35% labor reduction and USD 1 million in cost savings in China alone during 2024. We are now assessing deployment feasibility in Turkey and Mexico. Sustainability remains a core value. In 2025, we intensified efforts to reduce carbon emissions using certified EAC offsetting while preparing for deeper decarbonization. We also prioritized people, communities and strong governance, aligning with our customers' environmental, social and governance goals. CT Automotive delivered strong margin growth in the first half of 2025, underpinned by robust operational execution and the successful rollout of automation and digitization initiatives. This was achieved despite the broader backdrop of industry-wide tariff-related volatility, which continues to reshape global trade flows and customer sourcing strategies. While FY '25 revenues are expected to be slightly softer, this is attributed solely to timing differences in program launches and not a reflection of underlying customer demand. Importantly, our long-term production pipeline remains fully intact with confirmed volumes expected to ramp up meaningfully beginning in the first quarter of 2026. Our global sales team has made significant progress now covering every major automotive region. As a result, our request for quotation book has reached an all-time high, reflecting increased engagement from both existing and new OEMs, including emerging players in the electric vehicle space. This diversification of opportunities, combined with our track record of successful program delivery, provides strong visibility into future revenues. Operationally, we are benefiting from investments made in prior periods, particularly in Mexico. Additionally, continued application of artificial intelligence across our production lines is driving improved efficiencies and margin enhancement. Taken together, these factors provide a solid foundation for a stronger second half performance. The Board remains confident in the group's ability to meet FY '25 profitability targets and maintains a positive outlook for 2026, supported by a growing contractual pipeline and increasing customer demand across all key geographies. Thank you for watching this presentation today. Sal and I will now take any questions that you have.

That's great. Well, Simon, Salman, thank you very much for your presentation. [Operator Instructions] As you can see, we have received a number of questions, both pre-submitted and throughout today's live presentation. And Salman, I'll hand over to you now to chair the Q&A, and I'll pick up from you at the end.

Thank you very much. I'll start on the questions from the top. What impact from the JLR shutdown do you have?

For us, there isn't really any impact from JLR because JLR is actually one of those customers that, fortunately, at this point in time that we don't have. I suppose the only real question is whether there's going to be any sort of contagion from the supply chain from JLR. And I mean, to date, we've not seen any contagion, but I know that Nissan are watching that carefully.

Okay. Thank you, Simon. How would you compare your ability to manage the current market versus your competitors?

I think like as always, in the automotive industry, the most important thing is cost. So where do we stand on cost against our competitors? I think the work that we've been putting in, in automation and digitization has really put us into a position of I think, most likely the best landed cost amongst our competitors. And I think that, combined with our global footprint, particularly in this sort of period of time of tariffs, puts us in quite a unique position. So I think we're in a very strong position.

How much more scope is there to use AI to drive margin performance?

I think it's just a constantly evolving situation at the moment. So we are -- wherever we see the possibility of deploying AI either to, let's say, improve the business performance to our customers or to reduce costs. We are -- I'd say we're at the forefront of just trying to do that, and that comes down mainly to down to a lot of leadership from the business that are very into this subject. I mean, to give you a bit of an example, we have just established an office, which will be starting in about 4 weeks' time in India. We've been through a recruitment campaign there to hire people who specialize in the agentic AI. So we see the ability -- the opportunities to deploying agents in the business as a big step forward in terms of reducing our administrative costs and our fixed costs.

Over what time frame will the RFQs occur? And what proportion do you expect to win?

At the moment, like we said in the actual presentation is that our RFQ book is substantial. And that's mainly down to the fact that our sales team are now covering all major continents. So China, North America, South America, Korea, Europe, Turkey. So we're covering all of the major automotive regions in the world. The RFQ books an all-time high, higher than I've ever known it, and that's partly down to the fact that we're covering so many areas. And in the RFQ book, it's kind of broken into 2 areas. It's even new programs and new product launches of the future, which could take anything up to 2 years. But then I would say off the top of my head, probably 40% of that RFQ book is actually customers who are looking to transfer business partly down to Trump tariffs, but also simply down to the fact that the auto industry is very competitive and they're looking for better prices. So some of the RFQs, they could -- we could get some great wins and see sales materialize in the next 6 months. Some of them will be new product launches, and that will take 2 years.

Is the slower-than-expected transition to EVs an issue?

No. It's not for us really because as a business, we're totally sort of drivetrain agnostic. We really don't care whether it's electrical or gas vehicles. But really, I suppose the slower take-up of EVs just means that a lot of our customers that are still doing gas platforms are selling similar volumes to what they always have done. Some of the EVs that we're on, the Rivians and people like that, they're still selling the volumes as per their expectation. I guess maybe the only EV platforms that are on -- which aren't selling the volumes we expected would be Tog maybe in Turkey and Vinfast in Vietnam, but both of those platforms were never significant in our overall sales.

Okay. Question from Andrew. Given that around half of your recent contract wins are tied to the Mexico facility and you're committing further CapEx there, how are you managing the growth opportunity while mitigating risks on geographic or customer concentration?

It's a good question. I mean, at the moment, with regards to geographic sort of risks, whilst USMCA is in force, it makes Mexico a great sort of supply base into North America. I mean, from a geographic perspective, how the business is currently functioning is that most of the stuff going into Europe is manufactured in China. Products that has to be -- for our customers in China is simply from our China plants. For our customers in North America, it's all supplied out of Mexico. So I mean, that's the geographic sort of strategy that we have at the moment. We are looking at improving our geographic strategy for Europe, and I'm sure that's something that we'll talk about at some point in the near future.

Okay. A question from Tim. Congratulations on the margin improvement. Sales were a bit softer. Do you expect sales to grow going forward while maintaining or improving these margins?

I think there's still slightly on the margin side, I mean, there's still room for improvement. And I think it's really on the direct and semi-direct element of -- in the cost of sales. And in the fixed cost area, I think as we work with agentic AI and see what we can do over there, there's further improvement to a net profit perspective. With regards to sales, I mean, the good thing is that the demand on our platforms has been pretty resilient, and that is not the issue for us. The sales at the moment were slightly softer in the first 6 months because really some delayed program launches. And the main cause of those delayed program launches was really Trump's strategy on North America relating to EVs and also to tariffs itself. And that meant that a few of our OEM customers in North America had to rethink their strategies with regards to where they're going to supply from.

Okay. Given the impact that cybersecurity issues have had on JLR, what risks are there for CT in this area? And how are you actively mitigating these? I'll take this one, Simon. So Mark, we took a cybersecurity study with PwC early in 2024. They highlighted a number of key areas that we needed to work on, and we've actively been managing those and mitigating those and basically turning them like in a traffic light system from red to green. So that's on the agenda always with the Board, and we're actively managing that. The next question is from Lars. The increase in net debt is mainly caused by trade receivables and CapEx. What are your views on CapEx and working capital increases? And will this continue? So I'll cover it separately. In terms of CapEx, the main CapEx has been in Mexico, and we are putting that in to support the future revenue growth that we've got. A lot of that is going in this year, about $3.5 million or so. And we will continue assessing what other CapEx we need, but this CapEx will support quite a lot of the revenue growth going forward. In terms of working capital, at the half year, this was higher, especially on the trade receivables side for reasons mentioned in the presentation where we had a delayed payment. We expect this to be back at normalized levels at -- which were as of FY 2024, which are around about between $12 million to $13 million. So we'll be looking to track over there. And then as revenue grows, I think the debtors in line with that would also grow as well. But overall, the business is cash generative, and we've done our long-term forecast going out, and they are looking good. Next question is from Mark. You previously said that you could triple production in Mexico without significant additional CapEx, but also increase investments in Mexico in H1. What is your current view on the spare capacity in Mexico? And how much CapEx would be required to utilize that capacity?

It really kind of depends on market. It depends on the kind of program that we were nominated on and win, whether it's part of our core competency that exists in Mexico or not. But where we stand at the moment in Mexico with regards to floor print of factories, injection molding facilities, I think it's quite easy for us to absorb at least of our standard type of products, at least $10 million to $15 million of increased revenue. And our gross profit margins where they stand at the moment, which is sort of like 30%, it makes an enormous impact on the bottom line of the business. I mean I think one thing that everyone should understand about Mexico is that within our accounts as it stands at the moment, obviously, we've been running costs on developing a plant in Mexico without achieving revenue yet. So this is a drag to our profitability. But going into 2026 and with the sales revenue increasing due to the new launches and the Mexico actually hitting more of its, let's say, critical mass, that will make a big difference to bottom line profitability.

Okay. Can you give some more color on the delayed customer payment? This seems to be a material amount to be delayed from a single customer. Do you have credit insurance on all customers? I'll take the last part, Simon. Yes, we do have credit insurance. So we would have been covered on this mark. I'll leave the earlier part to you, Simon, to answer.

Sure. So you may be aware that one of our large customers, which is Marelli Group, entered on Chapter 11 in what was about Q2 for our financial year. And that obviously created some delays of payments to us. I can say that whilst Marelli at the moment still trade in Chapter 11, we did recover the majority of our outstanding money from Marelli. Our banks with FGI were fully insured in the event of something like this happening. So overall, I would say we were quite covered. And as always, in the automotive supply chain, like whilst Marelli a key part to multiple OEMs across Europe, I think if it ever got to a too difficult situation as we've seen sort of historically, then OEMs simply can't afford companies the size of Marelli to fail. So they tend to step in and take over payments.

Okay. Next question is for me. Hyperinflation was excluded from the adjusted results as a nonrecurring item, yet this seems to be recurring, have also been in the prior year adjustments. What is this? And why do you assume that this is a one-off despite previous occurrences? Okay. So the hyperinflation mark is specifically in relation to Turkey that the economy over there is in a hyperinflationary situation. So I think by the first part of the question, you meant why it was not included as a nonrecurring item at FY 2024 year-end. You are right, it wasn't. And the reason for that was because it was very immaterial. The calculations of how hyperinflation work is that the adjustment tends to be higher at the half year mark. And then as the revenues build up, they consume that value that builds up. And at FY '24, it was very immaterial. Therefore, we didn't include it. It does not relate in any shape or form to our operational profits. Therefore, we put it down as a nonrecurring item. We would like to call it as a non-underlying item, but the auditors have forced us down the nonrecurring item route.

I just to add to that is that obviously, we've been trading through, let's say, this inflationary period ever since, I would say, '22 in Turkey. And we have seen sort of the inflation like spike up in Turkey, but I would definitely say it's now dropping off. And we know that through our escalation system models that we use with our customers. So at some point in time, we would hope that Turkey will fall more under a normal sort of inflationary level that may fall outside of hyperinflation.

Is there any customer demand or commercial requirements to switch any business from China to Mexico?

Yes, there is. I mean we've seen a lot of that going on, both in terms of new business wins that we've got, where a lot of our competitors, let's say, don't have a manufacturing footprint in Mexico and also from our own Chinese manufacturing plants to Mexico simply to avoid the tariffs that Donald Trump has put in place.

Okay. I'll take this from Jonathan. The use of avatars in these results presentations, although impressive, is rather impersonal. I think it would be more engaging to revert to the use of live humans. Simon, do you want to take this one?

Yes. I think, Jonathan, what's important for us is time, that's a factor. We have a number of presentations, not just this, but with many investors. And I think the key thing is for us is to get the business messaging across in the best possible way to you guys. I mean, there afterwards, like Sal and I are here to have any discussions with regards to any questions that may come up in person. But I think for anybody looking at the business, we want to ensure that you've got the clearest direct messaging possible.

Okay. The company is currently valued on around 3x EBITDA. Why do you think the market is valuing the business so lowly?

Yes. I mean, guys, I wish we knew is the honest answer. I think that the auto industry is obviously in a state of flux at the moment. So I think there's some general concerns there. I also think that it probably dates back to our first year when we first IPO-ed when we were still in that sort of COVID period in 2022 and all the China lockdowns occurred in our factory, which caused us a major problem in our first year of IPO. I mean what you can see since then across '23, '24 and now into '25 is that we're on the numbers. We have good opportunity for growth. We're improving our margins all the time. So I guess some people need to look at the track record across the last 2, 3 years now and hopefully rerate the company to a valuation that is more suitable for a company like this.

Okay. Do margins differ significantly between the main manufacturing bases?

Not really. I would say, at the moment, the margins are probably the lowest side is Turkey, but that's a very small element of our business. But between Mexico and China, they roughly run at about the same sort of gross profit margin.

And can you please provide some information on the longer-term targets and outlook, particularly with regards to revenue and adjusted net profit expectations? Lorenzo, in relation to this, yes, the longer-term targets are to grow and to grow the revenue, hence, the investment in CapEx that we're undertaking and a very strong RFQ book as well. In terms of actually what targets are, these are communicated to our analysts singers and the report in terms of what we're targeting for '26 would be available from them. The shares are down 80% from IPO and the earnings multiple is very low. Even compared to the auto sector, which is used to single-digit multiples. At what point would it be better for the company to allocate capital to buying its own shares versus incremental CapEx on growth? The market doesn't seem to be rewarding the growth potential with a higher rating, making any buyback highly EPS accretive.

I think -- so you can add in a minute. But what I would say is this at this point in time is that we, as a business, a real inflection point. Going into '26, I mean, the business is very cash generative. And I would say at the back end of '26 will be the first time that the business has significant cash levels. At that point in time, I think we have discussed that the company, if we see shares at a very low level or a level that we consider to be valued, I think we will try and underpin it. Have you got anything else?

No, I think that pretty much covers it really. I've got through most of the questions over here. somewhat repetitive. So therefore, I've missed them out. But really appreciate everyone joining us and letting Simon and I answer your questions and listen to our presentation. Thank you very much.

That's great. Well, Salman, Simon, thank you very much for updating investors today. Can I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations on behalf of the management team of CT Automotive Group plc, we'd like to thank you for attending today's presentation, and good morning to you all.

Thank you.