Grammer AG (GMM) Earnings Call Transcript & Summary

Perfect. So I got the information that the sound is now on. So again, good morning, and welcome to our today's conference call. So in the roughly next 30 minutes, our CEO, Jens Ohlenschlager; and our new CFO, Kelvin Wang, will provide you with an overview about the first half year of 2025. Afterwards, you know the procedure as usual. There will be a short Q&A session where you're very much welcome to ask us any questions you may have after the presentation. And with that, I'll hand finally over to you, Jens. The stage is yours.

Yes. Thank you, Tanja, and sorry for the minor sound problems at the beginning of our presentation. Good morning, again, to everybody, and thank you for your interest in our company and another warm welcome to the presentation of Grammer Group's business figures. We look forward to providing you with an overview of our business performance in the first half of the year. I will begin with a brief overview of the most important developments. Overall, the global economy in the first half of 2025 was characterized by a high degree of uncertainty. Ongoing trade tensions and persistent geopolitical risks all negatively impacted economic performance. This also impacted Grammer's revenue development in the first half of 2025. Despite the decline in revenue, we were able to significantly improve our profitability in terms of operating EBIT. The restructuring initiatives increasingly took effect in the first half of the year. We see us on the right track to sustainably improve our profitability. EBIT reached EUR 24.2 million in the first 6 months of the year, operating EBIT even EUR 35.6 million. This reflects the successful implementation of our efficiency program, especially the Top 10 Measures, including capacity adjustments in the EMEA region as well as the restructuring and the future-oriented collective agreement. Overall, the revenue dropped in H1 2025 by minus 4.5% to EUR 953.7 million. As visible on that slide, the Commercial Vehicles business has been affected by the downturn in demand. Grammer recorded a 5.4% decline in revenues to EUR 341.1 million compared to the first half of 2024. In the automotive area, the revenue went down by minus 4.1% to EUR 612.6 million despite the integration of the former JAI production sites. EBIT was at EUR 24.2 million in the first half of 2025. Despite a decline in revenue, Grammer recorded a significant increase in operating EBIT to EUR 35.6 million. In this figure, negative currency effects of EUR 11.4 million, income from dissolving restructuring provisions of EUR 1.6 million and a negative deconsolidation effect of a U.S. Group company of EUR 1.5 million have been adjusted. The improvement in profitability in terms of operating EBIT resulted from the Top 10 Measures, especially adjustment of capacity in the EMEA region and the successful conclusion of the restructuring and future-oriented collective agreement in Germany. Let's have now a look at the development of employees. The reported number of employees also considered temporary workers and as an average over the year to provide accurate picture. Including temporary staff, the number of employees decreased slightly by 0.4% to nearly 14,200. In Americas, a total number of 2,800 people were employed. EMEA headcount increased by 3.3% to 7,424. The increase in EMEA corresponds to the integration of the Jifeng Automotive Interior Group and its locations in Eastern Europe as of December 31, 2024. In APAC, strong use of temporary workers was required to manage new product launches and to cope with a strong order intake from the last 2 years. A minor increase to 1,615 employees can be reported. The number of employees in the Central Services was lower by minus 85 compared to previous year's level. The reduction and transfer to the Grammer business center in Serbia started towards the end of 2024 and is becoming more and more visible. Let me now turn to the capital expenditure for the first half of 2025. CapEx decreased by 37.1% to EUR 35 million. That includes EUR 2.6 million for assets from rental and lease agreements that were capitalized in accordance with IFRS 16. EMEA accounted for EUR 12.9 million, a minus of 29.5% compared to the previous year. These investments primarily decreased due to lower capitalization volume with focus on new product launches at plants in Czech Republic and in Serbia. Investments in APAC amounted to EUR 8.4 million in the first half year of 2025. The previous year's figures included the leases under IFRS 7 with a total of EUR 15.7 million. Only EUR 1.2 million was recorded for leases in the first half year of 2025 in that region. In Americas, the capital expenditure increased from EUR 3.6 million to EUR 9.8 million. The investments mainly related to new product -- production facilities and machinery for the industrialization of BMW projects. Replacement of various equipment was done in Brazil and Mexico. Last but not least, in Central Services, EUR 3.9 million were invested into the new seat generation for Commercial Vehicles as well into digitalization projects, for example, a product life management system. Now I'd like to hand over to Kelvin, who bring us in details to the figures of H1.

Thank you, Jens. And now let's have a look at the main balance sheet figures. Working capital increased to EUR 229 million because accounts payable were removed due to the [Audio Gap] related to JAI acquisition reduced short-term liability. Free cash flow amounted to negative EUR 47.8 million, and the free cash flow is mainly impacted by the significant increase in cash outflow from the investing activities due to the partial settlement of the liability from the acquisition of the European business of the Ningbo Jifeng Group, which outweighed the reduction in CapEx compared to the previous year. Net debt increased accordingly. However, this includes EUR 130 million subordinated shareholder loan from our main shareholder, Ningbo Jifeng, which can be rated as the equity instead of debt. This is why we should hear an adjusted net debt of EUR 415.2 million. For this slide, let's have a look at our equity leverage and gearing. Already mentioned EUR 130 million debt equity adjustment is also included here in addition to the reported figures, leading to a more accurate picture of the financial situation. Equity and equity ratio decreased due to the negative other comprehensive income of EUR 24.1 million. It's negative. Reported leverage increased to 7.2 due to the increase in the net debt. Adjusted leverage is at 3.3. Here, we consider the reclassification of the subordinated shareholder loan as well as extraordinary effects in line with the definition of the covenants with the bank. Gearing reached about 214.7% but adjusted for the subordinated loan, it is at 108%. Now let's move to the development of each region. Let's start with EMEA region. It's Grammer headquarter and also the largest region, generating more than 50% of the revenue. Here, we achieved revenue of EUR 563.9 million, representing 0.5% increase compared to the same period last year. In addition to the high call-offs from the major customer, the integration of JAI Group also played a role here. We will provide an update on the current status of the JAI integration later in this presentation. In EMEA, the economically induced slump in demand had a particular strong impact in the Commercial Vehicles area, where revenue fell by 4% to EUR 234.3 million. In the automotive product area, however, revenue increased by 3.9% to EUR 329.6 million. Besides the slight increase in overall revenue in the region, Grammer was able to significantly increase its EBIT and also operating EBIT in EMEA, thanks to the restructuring initiatives that Jens previously already mentioned. EBIT amount to EUR 20 million in the first 6 months of 2025 compared to EUR 15.4 million in first half year from 2024. Operating EBIT increased to EUR 24.4 million with a percentage to sales by 4.3% in the first half year of 2025. Let's continue with the region, APAC. APAC recorded 3.3% decrease in revenue to EUR 245.7 million, adjusted for currency effects. However, the decline in revenue was lower at 2.4%. The decrease in the region is attributable to the higher-margin Commercial Vehicles products area where we saw 10.5% decrease in revenue to EUR 65.5 million. In the Automotive area, revenue declined slightly by 0.4% to EUR 180.2 million. In China, in particular, American and European OEMs have lost market share to local OEMs, which now accounts for more than 50% of Grammer's revenue in the Automotive product area. EBIT in APAC decreased to EUR 17.5 million in the first 6 months of 2025 due to the revenue decline of the high-margin Commercial Vehicles product area which is unfavorable product mix. Operating EBIT was also down at EUR 17.7 million with a percentage to sales by 7.2%. In Americas, the figure for the first half year of 2024 were adjusted retroactively following the sale of TMD in September 2024 to reflect only continuing operations. In the region, the Grammer Group of revenue EUR 165.8 million in the first 6 months of 2025, down 21.6% on the same period compared to last year. The significant decline in revenue is attributable in particularly to the Automotive product area. Revenue fell by 26.1% to EUR 109.6 million. In Commercial Vehicles area, revenue went also down by 11.1% to EUR 56.2 million. Adjusted for currency effects, the decline in Automotive segment was 25.3%, while in the Commercial Vehicles products area, it amounted to only 4.9% due to ongoing ramp-up cost for the new Commercial Vehicles plant in U.S.A. and also the volume drop impact already mentioned. EBIT in Americas region was negatively at EUR 5.8 million. The operating EBIT amount to negative EUR 0.2 million. The operating EBIT margin ratio was negative 0.1%. The region will remain the focus of the Executive Board's efforts to initiate the sustainable turnaround. And this brings us to the outlook for the full year 2025 as a whole picture, for which I will hand back over to my colleague, Jens.

Thank you very much, Kelvin. Looking at the current fiscal year 2025, the Grammer Group anticipates continued challenges in an increasingly uncertain macroeconomic landscape. Weak economic conditions across Europe, particularly in Germany, combined with persistent disruptions in global supply chains and escalating trade policy tensions create a very complex operating environment that complicates our forecasting efforts. Nevertheless, we maintain -- Grammer maintains our steadfast commitment to deliver results. This environment continues to present significant challenges for our operations. We are facing persistent political uncertainty and heightened geopolitical tension across our key markets. Trade restrictions and tariffs are escalating globally with particular emphasis on U.S. tariff policy. These factors are creating elevated cost pressure throughout our business and impacting our operational efficiency. In response to these ongoing challenges, Grammer will continue to focus on the consequent implementation of our Top 10 Measures throughout 2025. Customer demand will vary by product area and region. In Americas, we expect a decline in revenue. In EMEA, we expect the revenue to increase. And in China, we expect a further shift towards local OEMs, as already mentioned by Kelvin. Despite the challenges, we expect a stable revenue of around EUR 1.9 billion for the 2025 financial year. As a result, the operating EBIT is expected to increase to around EUR 60 million. However, the outlook depends significantly on further geopolitical developments and their impact on the global economy. Following the asset deal on December 31, 2024, I'd like to provide a brief update on the integration of the project between Grammer and the Jifeng Automotive Interior Group, shortly JAI. As a 100% subsidiary of Ningbo Jifeng Auto Parts, JAI brings expertise in production of headrests, armrest and other interior components, which will further enhance our Grammer capabilities. Implementing the Grammer SAP standard across JAI plants has been a major focus in the first 6 months of 2025, involving over 100 colleagues from both companies. I'm pleased to announce that the new system went live successfully in January 2025. This milestone represents one of the most significant and collaborative efforts in Grammer's recent history. As you may recall, the integration has already created significant opportunities for both companies. The next slide will highlight the compelling benefits of our combined activities. In recent years, Grammer and JAI have successfully collaborated in various areas. The completed integration has strengthened our market position in the headrest and armrest segment, enabled us to approach customers under a unified brand, streamlined joint ventures -- streamlined joint production, planning expanded our footprint in EMEA and leveraged cost advantages for Grammer. Here, our presentation is done, and I can hand over back to Tanja.

Thank you very much, Jens. Thanks, Kelvin, for the very detailed information about our first half year. And with that, we would like to start our Q&A session.

So you're welcome to ask us any questions you may have after this presentation. Please raise your hand. And I will unmute you, so you can ask your questions, directly to the audience. So far, digital silence, no questions. Again, if you have a question, please raise your hand, and I will unmute you. It seems the picture is very clear and all -- maybe raised questions have already been answered. So with that, we would also like to end then the call today. As always, if you have afterwards questions, you want to talk directly with us, this is not a problem at all. Just get in contact, and we will answer them. So with that, I would like to end the session. Thanks, everyone. Have a good rest of the day and hear you with the Q3 release. Bye-bye.

Thank you.