Grammer AG (GMM) Earnings Call Transcript & Summary

Welcome, everyone, and good morning to all of you joining us today on this call. My name is Katerina Koch, and it's really my pleasure to welcome you to Grammer's Annual Conference for the 2025 financial year. Over the next 20 minutes, our CEO, Jens Ohlenschlager; and our CFO, Kelvin Wang, will guide you through the presentation, which you can also find on our website. Following the presentation, we will open the floor for your questions. And with that, I'd like to hand over to you, Jens. The stage is yours.

Thank you, Katerina, and good morning, everyone. My name is Jens Ohlenschlager. I'm the spokesman of the Executive Board. Thank you for your interest in Grammer. And on behalf of our team, I welcome everyone joining us today for the presentation of Grammer's financial results. We look forward to sharing the highlights and insights of the 2025 financial year. Joining in today's presentation, my Executive Board colleague, CFO, Kelvin Wang. Together, we will present our financial performance of 2025, talk a little about strategic initiatives and give an outlook for 2026. Let me start with a brief overview of the most important developments. 2025 was again a challenging year. Markets remained under pressure and geopolitical uncertainty had negative influence on our industry. The year 2025 was started with a clear commitment, execute our Top 10 program, improve profitability and strengthen the resilience of our business. And that is exactly what we -- what Grammer did. Let me highlight the most important milestones. Operating EBIT reached EUR 75 million, well above our guidance of EUR 60 million, while at the same time, revenue was below budget and initial expectations. In the region EMEA, the consistent execution of restructuring initiatives, efficiency improvement programs and cost recovery measures were the ingredients to increase the margins. 2025, Grammer EMEA was a key contributor to the financial performance. In Grammer Americas, we streamlined the product portfolio to focus on core competencies and core business. The Gramag joint venture was divested and the entity Grammer Industries, LLC resolved. And in Grammer China, we enlarged the position with domestic vehicle manufacturers, representing meanwhile more than 50% of the sales in this region. In the area of sustainability, a significant milestone was reached when reducing CO2 emissions for Scope 1 and Scope 2 by 25% compared to 2019. It was a firm commitment, and we kept it. In our strategic pillar of customer excellence, product quality and delivery, reliability have been improved. Error rates were reduced to 9 nonconforming parts by 1 million delivered. Delivery rates resulted in 99% on-time deliveries. With regards to innovation and digitalization, progress was made in implementing a product life cycle management system and investments were made in production automation. Let me give you now a snapshot of some key figures. 2025 was ended with a revenue of EUR 1.82 billion, EUR 100 million below prior year caused by ongoing market headwinds. While the product area of commercial vehicles proved resilience, automotive was under pressure and sales dropped by almost 9% compared to 2024. Looking at the operating EBIT, a substantial improvement to EUR 75 million can be noted. Operating EBIT margin improved from 2.2% to 4.1% and free cash flow turned from negative EUR 19 million to positive EUR 39 million. Kelvin will take over to present the figures.

Thank you, Jens. Let me go through the key financial summary of the Grammer Group 2025 consolidated versus 2024. Revenue declined by 5.2% to EUR 1.82 billion. That was driven by the decrease in the automotive area declining by almost 9%. Commercial vehicle, on the other hand, slightly grew by 1.8%. Now let's look at profitability. Well, the picture changes against the sales decrease. EBIT jumped from EUR 8.1 million to EUR 69.1 million. Operating EBIT rose from EUR 41.6 million to EUR 75.1 million. The operating margin ratio improved from 2.2% to 4.1% against the revenue decreased by 5.2%. The driver was especially the region EMEA from the consistent execution of our top 10 measures, restructuring initiatives and also customer cost compensation. A few items to flag on the operating EBIT. It was adjusted for negative currency effects by EUR 11.3 million. We also recognized the income from the dissolution of restructuring provision of EUR 3.8 million and a deconsolidation gain of EUR 1.5 million. And now let's move to the whole picture of each region performance. For EMEA region, revenue grew by 2.4% against the market trend. Both product areas contributed. Commercial vehicle grew by nearly 3%, automotive by more than 2%. The JAI integration contributed to the sales compensation to the market declining. EMEA region operating EBIT margin ratio increased from 2.4% to 5.9%. The contribution mainly from restructuring measures, efficiency programs, cost compensation from customers, business center relocation in Serbia benefit plus the contribution of future connective agreement at our Amberg locations. EBIT moved from EUR 9.8 million to EUR 58.5 million. That is a substantial step forward for this region. The operating EBIT was adjusted by below factors to come to EBIT. We have the negative currency effect around EUR 4.7 million on income from dissolving of restructuring provision of EUR 0.7 million and a deconsolidation loss of EUR 0.3 million. Moving to APAC. Revenue declined by 11.1% to EUR 477.3 million. The driver was the automotive product area with revenue falling by over 15%. It is mainly due to American and European OEMs lose market share to local Chinese manufacturers. Those local OEMs now account for more than half of our automotive revenue in China. Commercial vehicles was a different story. It is up 3%, supported by growth in the off-road segment. Regarding profitability, EBIT and operating EBIT both declined in absolute value, primarily due to the revenue drop. However, the operating EBIT margin ratio improved slightly from 8.7% to 9.1%. That reflects the underlying efficiency of the business against the sales decrease in this region. The operating EBIT was adjusted to EBIT by the negative currency effects of EUR 0.8 million. Now let's move to the region of Americas. For America, revenue declined by 19.1% to EUR 317 million. Automotive was the main reason, down 24% due to the project end of production and also the weak market demand. Commercial vehicle declined by 7% as a result of lower volumes. Earnings remained negative. The operating EBIT was negative at EUR 14.7 million, slightly better than 2024. The region continued to absorb ramp-up cost for our new commercial vehicle plant and also production inefficiency and cost related to the new project launches. The operating EBIT was adjusted by below items to come to EBIT, EUR 4.9 million positive for income from the deconsolidation of Gramag Industry and the share of Grammer-MAG joint venture. Additionally, EUR 5.8 million negative unrealized currency effects. Americas is still in the turnaround model and the team is working with the solution to have a better 2026. Turning now to the development of employees. We report the number of employees, including temporary workers as average over the year to provide a more accurate picture. Without temporary workers, we had an average of 12,116 people at Grammer, 1.8% less than the same period from last year. Group headcount, including temporary workers remained stable, down less than 1% to around 13,900 employees on average. For the specific status in each region, America headcount declined by nearly 16%, reflecting the lower demand and our restructuring measures in the region. In central service, headcount was reduced by over 17%, primarily driven by the ongoing shift function to our business center in niche, combined with the organizational changes and the optimization of management structures. EMEA, on the other hand, grew by 6.4%. That increase is almost entirely attributable to the integration of JAI Group, which had over 1,000 employees as of January 2025. APAC slightly up by 1% to manage the further growth. Overall, those developments reflect our capability of flexibility to volume at a timely manner and also the cost structure optimization approach. Let me now turn to the capital expenditure in 2025. came in EUR 94 million and was slightly below the prior year level of EUR 96.3 million. By region, EMEA invested EUR 29.8 million, focused on the automotive ramp-ups, injection molding capacity and new commercial vehicle product generations. APAC came in at EUR 29.1 million, mainly directed at our China plants in Changzhou plant, Changchun plant, Shenyang plant and Beijing plant with IFRS 16 leasing significantly below the prior year. Americas increased to EUR 26.7 million, driven by production equipment and facility for the new project, primarily at the Tupelo plant and Central Service invested EUR 8.4 million, mainly in the development of new CV site generation and our PM digitalization project. 3 metrics to cover on this slide, working capital, free cash flow and net debt. Working capital declined by 19% to EUR 139.8 million. That reflects lower inventories and reduced trade receivable benefit to the free cash flow generation. For the free cash flow improved from negative EUR 18.9 million to positive EUR 39.1 million. That is EUR 58 million improvement, driven primarily by the strong operating results and also working capital improvement. On net debt, the headline figure increased slightly by EUR 4 million to EUR 476.8 million. This development was mainly driven by 2 factors: First, EUR 45 million negative impact versus 2024 as the hybrid loan for JAI acquisition at the end of 2024 but paid for acquisition in 2025, which caused lower debit in 2024 as cash increased, but financial liability not increased. Secondly, the IFRS 16 lease capitalization for our new America facility increased financial liability by EUR 11.6 million. The financial liability decreased by EUR 42 million if without above 2 items impact. The adjusted net debt figure, which trades the EUR 130 million in subordinated loans from our shareholder, Ningbo Jifeng, stands at EUR 347.2 million, which is more accurate to reflect the reality of our financial structure. Let me close my part with a look at equity, leverage and gearing. Equity increased by 4.4% to EUR 278.6 million, driven primarily by the net profit of EUR 23.5 million in 2025 and also negative impact from OCI by EUR 9.7 million. The equity ratio improved from 15.7% to 17.3%. The already mentioned EUR 130 million net debt adjustment is included as here in addition to reported figure, leading to a more accurate picture of the financial situation. Leverage improved from [ 5.7 to 3.2 ]. That reflects the strong EBITDA performance in 2025 on adjusted basis, treating the subordinated shareholder loans as equity and adjusting for exceptional items, leverage stands at 2.3. Gearing came in at 171% and to be 85% after the adjustment of shareholders subordinated loan of EUR 130 million from shareholder Jifeng as equity. It is consistent with how we presented with last year. Across all the 3 metrics, the direction to show the balance sheet is in better shape than 2024. With that, I will hand back to Jens for the outlook.

Thank you very much, Kelvin, for presenting the details of our financial performance in 2025. I'd like to draw now the intention on 2026 and the outlook we'd like to share. Our strategic priorities remain aligned with the ongoing transformation of the vehicle industry towards electrification, further digitalization and sustainability. Our outlook for 2026 reflects market volatility, identified opportunities and risks. The economic framework conditions remain challenging. Geopolitical tensions persist, trade policy remains unpredictable and the regions Americas, EMEA and APAC will continue developing differently. We expect a slight increase in revenue to around EUR 1.9 billion. The growth will come primarily from Grammer China, while in the regions Americas and EMEA, the sales will remain largely unchanged. In terms of profitability, we are guiding for an operating EBIT of around EUR 80 million. The continued execution of our Top 10 program with efficiency improvement initiatives, restructuring measures and cost discipline will be a primary driver. I'd like to remind that the outlook is subject to geopolitical developments and the impact on the global economy as well as stable exchange rates. Beyond 2026, we also have updated our medium-term planning. By 2028, a revenue of EUR 2.5 billion with an operating EBIT margin of over 5% is targeted. This is an ambitious but realistic path forward built on structural improvements already done and ongoing and the substantial growth of sales, particularly in China and in Americas. Last but not least, I'd like to highlight the product that represents a forward-looking step in the product segment of commercial vehicle seats. The new seating generation, MSG297 is designed for drivers in the agricultural and construction sector. With this seat, Grammer is setting new standards in comfort, ergonomics and in digital connectivity. It brings significantly improved suspension performance to support drivers' health during demanding working conditions. Also features and quality standards from the automotive sector have been integrated into the design, which makes the seat not only functional but also looking quite attractive. Here with our today's presentation of the 2025 Grammer Group result is ending, and I'd like to thank for your attention. Giving back the word to Kati.

Thank you, Jens. Thank you, Kelvin, for the detailed overview of Grammer's performance in 2025. Now as promised we will move to the Q&A session. [Operator Instructions] It seems that there are no questions at the moment. Of course, also after the presentation, you have the possibility to reach out to us. We are here and available to answer your questions if there are any. Thank you very much for your attention. Have a great day and see you on the next earnings release in Q1. Thank you very much.