Feintool International Holding AG (FTON.SW) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Feintool International Holding AG Half Year Results 2025. [Operator Instructions] Let me now turn the floor over to your host, Lars Reich.

Yes. Good morning, ladies and gentlemen, and thank you for joining our conference call today. Thomas Erne, our CFO, and I are pleased to present our results for the first half of 2025 and discuss them with you. Before we move on to the results, I would like to say that it is a great honor for me to take over the management of the Feintool Group CEO as June 1, 2025. I succeeded Torsten Greiner, and I would like to sincerely thank him for the smooth transition. I have been with Feintool in the United States since 1999, so close to 26 years in different management positions; and since 2009, I have led the successful development of our U.S. business. Under my leadership as Executive Vice President, Marketing and Sales, sales in the U.S. have grown substantially and the business was set on a sustainable path to profitable growth. In July 2023, I was appointed Chief Sales Officer of the Feintool Group; and in April 2024, additionally to cover as head of the fineblanking and forming business unit in Europe. I have to say, our core strategy has proven successful. We are strongly positioned in our core technologies, fineblanking, forming and e-lamination for the production of electrical motor cores and continue to benefit from solid demand across all drive types and regions. At the same time, we are systematically expanding our activities in electric mobility and renewable energy solutions. With our global production network of 18 plants, we ensure close proximity to customers worldwide and follow a clear local-to-local strategy, very important during those times right now. My short-term priority is to safeguard the profitability in a challenging European market environment while setting the course for sustainable global growth building on our technological leadership, operational excellence and strong customer relationships. To the agenda, let's take a brief look at the agenda. First, I will provide a short review and outline the most important market developments and their impact on our business areas, followed by some background on our operational highlights in the first half of the year. Our CFO, Thomas Erne will then present the financial figures for the first half. We conclude with our outlook, key messages and a strategy update before we move on to the Q&A session. Let's start the review. Resilience is the word that describes our first half year results. Resilience founded in our dual strategy to cater to any propulsion systems, ICE, hybrid or BEV vehicles helped Feintool navigate the uncertainties of the current automotive market. While we believe in an electrified future, the continued strong demand, especially for hybrid solutions fueled a solid demand worldwide. The first half year was also a tale of different markets for Feintool. We saw solid momentum in Asia, in particular China and in North America. Europe is still plagued by an overall weak automotive market and low demand for our e-laminated electric motor components. Our industrial products have still not fully recovered from the slow demand after the COVID crisis and continued to be soft globally. The U.S. market, a strong performer for Feintool. And over the last 15 years, we have grown to be the #1 supplier in functional critical fineblanked and formed components. We had some weakness in the U.S. dollar against the Swiss francs and lower material prices that account for up to 70% of our component prices; however, increased significantly the number of shipped components. Our building expansion in Nashville to absorb growth with next-generation hybrid components is completed and we are currently commissioning another large 1,600-ton servo transfer press to be in production this fall. Just as an example, over the last month, we -- last 12 months, we experienced an increase of 50% in daily shipments of some of our formed components, in this case, for an 8-speed hybrid transmission program. We see very strong demand in North America, especially on the hybrid drivetrain side. In Europe, thanks to our dual strategy, our traditional fineblanking and forming business was almost on budget and we experienced growth, especially in our forming plants in Obertshausen and Ohrdruf both located in Germany. The sales decrease of 17.5% was mainly founded in our e-stamping division with the early cancellation of an entire vehicle program that we supplied the electric main drive motor components. Furthermore, our industrial applications showed, especially in Germany, continued subdued demand. We acted and are currently in an active reorganization of our stamping division in Germany and have to rightsize or our European operations. We are close to reach a settlement and has been personally involved with the worker council and also the various unions and we expect that all the restructuring projects in Germany are completed in 2027 and will enable us to get back in improvements in profitability. The relocation of our high-volume fineblanking business from Lyss, Switzerland to our state-of-the-art plant in Most in the Czech Republic is nearly completed, and we have achieved on August 1 OEM approval and will start shipments on those programs towards the end of 2025. The decision 5 years ago to bring the e-stamping of our electric motor core technology to China proved to be right. We received a large order of approximately CHF 30 million lifetime from a large Chinese commercial vehicle manufacturer. The lower sales numbers are attributed to lower exports from our customers out of Japan and the fierce competitive pricing and volume war in our Chinese automotive markets. Our presence in India. We experienced a lot of interest in the Indian market, especially also from Japanese companies that would like to localize heating and transmission programs in India. Therefore, we broke ground in September 2024 and expect to be in operation by mid-2026. This is a greenfield plant that we're building close to Pune in the north of India, on Pune's automotive center in India. Here is a picture from the groundbreaking ceremony and an actual construction picture of the site as of July 17. We currently started to pour the concrete for the foundation of the factory. With that, I will now hand over to our CFO, Thomas Erne, for the financial results.

Thanks a lot, Lars, for the first introduction of the first part of the review. So I will quickly guide you through our financials, starting with the top line net sales. As you can see on that page, we basically dropped from CHF 390 million in the first half 2024 to CHF 334 million, that's a decrease of 14%. If we eliminate the ForEx impact, then we have a decrease of 11.5%. As Lars already mentioned, the regions going from the right to the left. The biggest decrease that we have is in Europe with decrease without foreign exchange impact of 15.4%; followed by Asia, a decrease of 9.5% compared to 13% with ForEx impact. And in the U.S., we dropped by 3%, as Lars mentioned, driven by a steel price impact, though the volume is actually higher, as you have seen in the slide before. If we go to the EBITDA slide, then you see that even though that we have a drop of CHF 55 million on the top line, we were able with our cost saving initiatives to mitigate the results and actually end only with a drop of CHF 5 million on the EBITDA level that was supported basically by a lower material cost quote, which is around 46.8% compared to 51.5% in last year due to a different product mix and also supported by lower personnel costs, which have been reduced by CHF 6.6 million compared to prior year's period. On EBIT level, we see the same picture. So we further decreased the depreciation compared to prior year by around CHF 2.2 million and also, of course, the effect that you're seeing above EBITDA is taking place in the EBIT. The group result in consequence has dropped to CHF 1.9 million. We are on our half year report, you see an EBIT adjusted. So this is the CHF 0.8 million. The adjustment is mainly driven by an accrual that we had to build for the change in the management. So the real operational result is CHF 1.1 million better financial results is at previous year levels, resulting in a net loss at the end of minus CHF 5 million. Last year, we reported minus CHF 3.2 million. Feintool remains with a strong balance sheet. So if we look at our numbers, then we see that cash is on previous year level where we have been first half also around CHF 52 million. Our receivables have been last year around CHF 120 million in the first year. So basically due to lower volume, we have dropped that to CHF 107 million. And inventory was last year, also around CHF 11 million higher, so we are still managing that very well. If we go on the next page, then our equity ratio is still at a 55.5% level, very strong, and our net debt slightly or increased to CHF 80.1 million. This CHF 80 million is driven by investments that we made. As Lars has mentioned before, we're investing in our growth markets in Pune in India, we're investing in Asia, we're -- we have been investing in the U.S. And this is basically then driving our net debt. Equity remains, as I said before, 55.5%, the drop that we see from CHF 450 million to CHF 426 million is mainly driven by a ForEx impact of CHF 25 million. Finally, the cash flow, as we have seen before, we have invested CHF 28.1 million that we have funded by increasing net debt. The operating cash flow last year was also around CHF 12 million. Investment has been also around CHF 27 million and the free cash flow last year was at minus CHF 15 million. So the growth that we are planning and the outlook that Lars will give you is supported by those investments.

Yes. Thank you very much, Thomas, and I'm now pleased to provide you with an outlook of the Feintool Group. We remain cautious but overall positive. While Europe with our reorganization task and the soft volumes will likely remain challenging, we see a good market and margin developments in our other regions, especially in North America. The right positioning with our e-stamping technology in China will support the market shift towards Asia. In the medium term, we believe that we are right positioned with our dual strategy and the various technologies in all 3 regions to profit from structurally growing markets. Our strategy has proven to be right and resilient. The way forward is to build on our global strength with our 18 production plants. Our local-to-local strategy isolate Feintool in most of the cases from geopolitical risk exposure. We are present in all the major markets, and our new plant in India will further strengthen our global footprint in a growth area in the near future. Why our dual strategy? As an automotive supplier that needs to install production equipment, prototyping, testing and validation of many of our components, we need to rely on some stability and years of production. Therefore, having our activities spread over all the possible propulsion system is the right strategy and let us focus our efforts on the actual demand and adjust accordingly. The slowdown in speed of electrification, as you also can see, we have very different opinions how much BEV vehicles will be penetrated in the market by 2030 going from the low 30s to the high 50s. And this current slowdown will give us time and the extension of ICE and hybrid prop forms exactly what Feintool needs to help to adapt our production plans worldwide and to invest in growth areas. A presence in all major markets, a local-to-local strategy. And this is very, very important, we buy material and we sell in all the markets. So our plants in China produce for China, our plants in North America produce for North America. We have very little export of products, only about 2%. So we are mostly isolated of the current geopolitical risk. And high interest and growth potential of India in the near and midterm will truly help us to strengthen and build on our global plant network. In China, the true test of success is selling from -- to a local Chinese subsidy to a Chinese OEM. And 5 years ago, we decided to add our e-sheet capabilities, electric motors to our Chinese operation and expanded our facility in Taicang. You see that on the left side, we have already maxed out the facility. And we have now been successful to win our first main motor application. It's for a commercial vehicle. It's -- we can't show you the vehicle, but it's something small, transporter. And this -- this order has been received in the first half of the year, and we expect a lifetime volume of around CHF 30 million. But it shows that we are positioned right and that we can grow in our new technologies. So for me, it's clear a tale of different regions, Europe, North America and Asia, they developed very differently. But the strength of Feintool lays in a consequent globalization effort that we started already in the '80s. We have now 3 strong regions that are very well managed. Our management team in Asia has been together over 20 years. The North American team I'm coming out as now a leader that has been since '23 with Feintool, so we are very deeply rooted in those areas. They know best the local strategies, price levels and opportunities. And it's my goal personally to further strengthen the regions with high independence but ground them with a strong Feintool Group and support out of the group. In these uncertain times, it's important that our customers can rely on a strong partner. Therefore, in Feintool, we truly make more than parts, we make commitments. We commit to faster innovations to quality and reliable parts, and we are a true partner to our customers. So before we start the Q&A session, [Operator Instructions]. And I will be happy to take questions on the company's general direction and strategy, while Thomas, our CFO, will address the detailed financial questions. We will first take questions from participants on the conference call and afterwards, move on to the questions that have been submitted via the chat function. Now operator, please open the line for the first question.

[Operator Instructions] And the first question is from Charlie Fehrenbach, awp.

My first question is, is it reasonable to assume that the sales decline in the full year will be in the double-digit area as well as is similar to H1? And my -- yes, okay, you want the second later.

You can ask both, if you want.

My second would be the -- there was in February -- there was confidence to be back in black figures on the results side for the full year. Can you confirm that? And if yes, what does it mean exactly? Is it just on operating or EBIT level or also on net level or with or without extra costs?

Okay. First, to your sales decline, we had -- our major problem in Europe was the early cancellation of a large program, but we expect for the second half year a little bit stronger sales, but we still will see probably double-digit sales reduction for the full year. But not continue to be stronger, but a little bit -- not continue to be weaker, a little bit stronger for the second half because that program is gone now. And we have 1 or 2 new applications that start up. But overall, we will not be able to make up.

And regarding the one-offs, as you mentioned. So basically, the one-offs are driven by the progress of the negotiation with the German Works Council due to the closure that we plan or the restructuring of the German plant. So that will also then drive the one-off effect in the second half. But at this point, we believe that we are able to close the negotiations actually pretty soon. So -- but it's too early to announce. And in consequence, we cannot make a statement on the one-off effects at this point.

So Lars or when -- for the full year, you won't do any prognosis here?

No.

At the moment, there are no further questions here in the audio conference. [Operator Instructions] And for the moment, I hand back for the written out question in the chat.

So we have a couple of questions in the chat. So I start with the one that is first submitted. So Walter Bamert from Zürcher Kantonalbank, he basically wrote more questions because you announced it too late that you want only 2 questions. But we basically -- the first question we already answered. So that was, could you please quantify the expected one-off cost for second half '25 and 2026? So the answer we already have given. So I think that's clear. How big was the U.S. ramp cost in first half '25? And what do you expect in second half and 2026 from each of the various projects.