Grammer AG (GMM) Earnings Call Transcript & Summary

Hello. Good morning everyone, and welcome to our today's conference call for the first quarter of 2025. So in the approximately next 30 minutes, our CEO, Jens Ohlenschlager; and Thomas Strobl, who was recently appointed to the Executive Board, will provide you with an overview of the first 3 months of the year 2025. Afterwards, as usual, as you know there will be a short Q&A session where you are welcome to ask us any question you may have, be it directly then we will [Audio Gap] to you, Jens.

Thank you very much, Tanja, and a warm welcome to all of you who have joined us today for the presentation of Grammer's group financial results. We appreciate your interest and look forward to provide an overview about our business performance and the key milestones in the first 3 months of 2025. Macroeconomic and industry-specific uncertainties continued to impact the business environment and also Grammer's revenue development in the first quarter 2025. In particular, the Commercial Vehicles area was affected by weak demand in all 3 regions caused by the economic downturn. Despite these challenging conditions, we've been able to significantly improve our profitability. First quarter underlines the effectiveness of our transformation efforts and show that these strategic steps are already beginning to pay off. We see Grammer on the right track to sustainably improve its profitability. EBIT reached EUR 19.2 million in the first 3 months of the year. This positive result reflects the successful implementation of our efficiency program, especially the Top 10 measures, capacity adjustments in the EMEA region, restructuring and going lean in our organization and the future tariff agreement. Adjusted for negative currency effects of EUR 4.7 million, operating EBIT also increased substantially to EUR 23.9 million. Let's take a closer look at the revenue split. Overall, the revenue dropped in Q1 2025 by 2.2% to EUR 407.4 million (sic) [ EUR 487.4 million ]. As we can see, the Commercial Vehicle business has been affected heavily by the downturn in the demand. Grammer was faced with a 7.5% decline in revenues to EUR 173.5 million compared to Q1 2024. In the Automotive area, the revenue was slightly up 0.9% in Q1 2025 to EUR 313.9 million with different regional development. In the Americas, Grammer was unable to offset the market decline in both product areas. In EMEA, we performed well against the market trend, especially in the Automotive area. Our strong position with leading OEMs enabled us to grow despite a challenging environment. But in the Commercial Vehicle product area, we were unable to escape the market downturn and sales declines compared with the previous year. In APAC, sales has grown in the Automotive area, thanks to our strong position and market share with local OEMs. But like in the other regions, sales in the Commercial Vehicles product area declined caused by the market downturn. However, Grammer managed to significantly increase its profitability against this backdrop. EBIT rose by 76.1% from EUR 10.9 million in the same period last year to EUR 19.2 million. Looking now on the development of employees. Including temporary staff, the number of employees increased slightly by 0.4% to 14,384, while in Americas 2,970 people have been employed, a reduction by almost 11% versus last year. The number of employees in EMEA increased by 4.1% to 8,044 caused by the integration of JAI, the European business of our main shareholder, Ningbo Jifeng. In APAC, an increased need for temporary workers was necessary to manage further growth. Several other employees have been recruited to cover the additional resources required in R&D and project management coming along with a strong order intake. Overall, the number of employees in this region increased 6.4%. In the Grammer headquarter, the number of employees in Central Services declined by almost 20% compared to the same period last year. Head count reduction by changes in the organizational setup and the transfer of tasks through the Grammer business center in Serbia its main contributor. Let us have now a look on capital expenditure in Q1 2025, which decreased by 15.9% to EUR 19.6 million. This includes EUR 1 million for assets under rental and lease agreements capitalized in accordance with IFRS 16. Regionally, APAC accounted for a capital expenditure of EUR 3.5 million, essentially for project-specific investments, in example, injection molding machines. In EMEA investments in Q1 2025 amounted to EUR 5.8 million, also mainly related to project-related investments. And in Americas, investments of EUR 7.7 million have been done caused by the replacement of various equipment in Brazil and in Mexico and for the industrialization of customer projects, here to say, in example, the BMW external headrest, console and seat external production. Last but not least, Central Services invested EUR 2.6 million in the development of the new Commercial Vehicle seat generation and in 2 major digitalization projects, product life cycle management and the manufacturing execution system. So far information about Q1 results from my side. I will now hand over to Thomas, who will present more details about financial KPIs.

Thank you, Jens. Good morning, everybody. Let's next take a look at the main balance sheet figures. Working capital increased to EUR 192.9 million in the first quarter of 2025 versus the last quarter of 2024 due to the increase of current trade accounts receivables mainly. Free cash flow amounted to minus EUR 6.7 million, which is mainly due to a higher cash out from working capital compared to prior year. Net debt increased accordingly. Note, however, that the reported figures include EUR 130 million subordinated shareholder loan from our main shareholder, Ningbo Jifeng, which can be classified as equity instead of debt. This is why we present here also an adjusted net debt of EUR 366.7 million, which is the more relevant figure with regards to our financial position. On the next slide, we take a closer look at our equity, leverage and gearing. The already mentioned EUR 130 million debt-to-equity reclassification is included also here next to the figures as reported, leading to a more accurate picture of our financial situation. Equity and equity ratio increased due to the positive net result in the quarter relative -- of EUR 9.7 million in the quarter. Reported leverage decreased to 5.4 due to the favorable development of net debt relative to the increase in EBITDA for the last 12 months. Adjusted leverage is at 2.8. Here, we consider both the reclassification of the subordinated shareholder loan as well as extraordinary effects in accordance with the definition of the covenants with our banks, which mainly include restructuring expenses. Gearing reaches about 182% as reported, but adjusted for the subordinated loan is below 100% at 91%. Now let's turn our attention to the development of our 3 operating regions. We start with APAC. APAC recorded a 4.5% increase in revenue to EUR 126.7 million in the first quarter of 2025 versus Q1 2024. Adjusted for currency effects, however, revenue growth was lower at 2.2%. The increase in the region is attributable to the Automotive product area where Grammer achieved an 8% increase in revenues to EUR 93.2 million and recently expanded its business with local OEMs. In China, in particular, American and European OEMs have lost market share to local OEMs, which now account for more than 50% of Grammer's revenues in the Automotive product area. In the Commercial Vehicles area, however, revenues declined by 4.3% to EUR 33.5 million. EBIT in APAC increased to EUR 9.8 million in the first quarter compared to EUR 9.3 million in the first quarter of 2024. Operating EBIT was at the same level at EUR 9.8 million, and the operating EBIT margin was therefore 7.7%, the same as in the previous period -- in the previous year period. In EMEA, Grammer's home base and largest region, we're still generating more than 50% of our revenues. Here, we achieved a revenue of EUR 285.2 million, representing a 1.5% decrease compared to the first quarter of last year. The economically induced slump in demand had a particularly strong impact here in the Commercial Vehicles area, where revenues fell by 9.7% to EUR 119.5 million. In Automotive, however, revenues rose by 5.5% to EUR 165.7 million. Despite the decline in overall revenues in the region, Grammer was able to significantly increase its EBIT and operating EBIT, thanks to the restructuring initiatives mentioned before. EBIT amounted to EUR 13 million in the first quarter compared to EUR 6.7 million in the first quarter of 2024. Operating EBIT increased to EUR 15 million. This results in an operating EBIT margin in EMEA of 5.3% in the first quarter of 2025. Finally, let's turn to America. And please note, in America, the figures for the first quarter of 2024 were adjusted retroactively following the sale of TMD in September of last year to reflect only continuing operations. With that said, in the region America, Grammer Group generated revenues of EUR 86.7 million in the first quarter of 2025, down 14.9% versus the same period last year. The significant decline in revenue is attributable in particularly to the Automotive product area. Here, revenue fell by 18.5% to EUR 58.1 million due to the ending of customer contracts. In the Commercial Vehicles area, revenues declined less significantly by 6.5% to EUR 28.6 million. Adjusted for currency effects, the decline in the Automotive segment was as high as 20.8%, while in the Commercial Vehicles segment amounted to only 2.9%. While EBIT in Americas was still negative at minus EUR 1 million in the first quarter, operating EBIT amounted to EUR 1.6 million after the adjustment for negative exchange rate effects. The operating EBIT margin was at 1.8%. This brings us to the outlook for the full year 2025 for which I will hand back over to Jens.

Thanks a lot, Thomas. Looking at the fiscal year 2025, the Grammer Group is preparing for ongoing challenges in a volatile macroeconomic environment, a weak economy in Europe, especially in Germany as well, the high uncertainties in the global supply chains due to the start of tariff conflicts make the forecasting a real challenge. However, we remain resolute in our commitment delivering results. Prior to the view at Grammer's total year outlook, a brief word on the market environment. Global economy is expected to remain on a modest growth path in 2025 and will be shaped by continued geopolitical uncertainty and cautious investment sentiment. The automotive sector global production is expected to remain at the previous year's level. In Europe, however, the industry faces high pressure due to regulatory changes, weak demand and rising trade policy risks. All of which are contributing to a tense market situation and an expected decline in production of 3.2%. The same goes for Americas as a whole, while Brazil will develop positively against the market trend. In China, Automotive market is expected to increase slightly in production numbers. The global truck production is expected to grow across all regions driven by regulatory incentives and fleet renewals. The agricultural machining sector is likely to stagnate or even decline in 2025 compared to last year. In the construction machinery sector, the forecasts predict a particular high decrease in North America due to the economic situation and the tariff factor. China, however, a recovery is expected after the real estate crisis. And in EMEA, the construction machinery sector will most probably take advantage of the infrastructure programs several governments have announced. Finally, slight global growth is expected for the forklift and industrial truck sector with positive impulses, particularly coming from the Americas region. Coming now to the outlook. The current market environment with political uncertainty, geopolitical tensions, increasing trade restrictions and tariffs also affects our business by increasing costs and putting pressure on supply chain. For Grammer, the year 2025 will be characterized by ongoing consequent execution of the Top 10 measures and further organizational adjustments. Customers' demand will vary by product area and region. Americas, we expect a decline in revenue, while in EMEA and China, revenue will increase. The shift towards local OEMs in China will go on. Despite the challenges, a stable revenue of around EUR 1.9 billion for 2025 is expected. In terms of operating profit, Grammer will take advantage of full year effects for the Top 10 measures implemented in the previous year and the continuation of the program will have a positive impact on profitability. As a result, the operating EBIT is expected to increase to around EUR 60 million. The outlook is subject to further geopolitical developments and the effects on the global economy. Some information about the restructuring and future-oriented collective agreement. Given the sustained pressure on the European automotive industry and rising costs, Grammer is responding with structural measures aimed at long-term stability and competitiveness, particularly at our Amberg located sites. Personnel costs are an essential component of a solid and competitive cost structure. Mid-January this year, Grammer entered into negotiation with representatives of IG Metall and employee representatives to create a restructuring and future tariff agreement for employees at the Amberg site. After several weeks of negotiation, the contract has been concluded becoming effective April 1, 2025. The restructuring and future collective agreement is an important step towards a secure and stable future for employees at the Amberg site and for Grammer as a company. In view of the economic challenges, innovation remains a key priority for Grammer and we are proud to share one of our latest product highlights at the bauma 2025 in Munich. Grammer presented a new driver seat for the construction machinery sector to the public the first time. Like all Grammer seats, the fully electric seat remains an efficient piece of equipment offering ultimate comfort, all the possibilities of digital connectivity, marketing functionality and the best quality for a long service life. We are confident that this new seat generation will set the standard in the market and be characterized by its uniqueness. We reached the end of our Q1 results presentation, and I have to give back the word to Tanja.

Thank you very much, Jens. Thank you, Thomas, for the very detailed information on our business development of the first 3 months in 2025. [Operator Instructions] If not, I will assume that all of the questions have been already solved during the presentation. So -- but as always, afterwards, you can contact me directly or you can also send an e-mail to us, and we will have a follow-up afterwards. So with that, we will end today's Q1 call. Thanks for your time and your participation, and have a good rest of the week. Take care. Bye-bye.

Thank you. Bye-bye.