Novem Group S.A. (NVM.F) Earnings Call Transcript & Summary

So here we are, again, so I apologize. So since we have some technical issues today here. So again, ladies and gentlemen, welcome to the presentation of Novem's Q1 results. In the first quarter, we achieved a revenue of EUR 128.9 million, representing a year-on-year decline of 8 percentage. This decrease is primarily due to the ongoing highly challenging situation in the automotive industry. The main driver of this decline was the tooling segment. Due to SOP delays, many projects could not be completed as planned. If there is a silver lining in this development is that -- sees tooling revenues are expected to return at a later stage. The serial production business remained logically still compared to previous year, but supported by a strong ramp-up of a premium U.S. electric vehicle model. However, serial revenue were impacted by additional production stoppage and public holidays/location periods towards the end of the quarter. The postpones SUPs and in some cases, extremely flat ramp-up curves have had a significant effect on our profitability. These factors led to an adjusted EBIT margin of 6 percentage for the quarter under review. To further stabilize our performance, we have initiated additional cost reduction programs at our central operations. Despite such a challenging environment, we have already secured attractive new orders in this fiscal year -- won customer Volvo and Sater from the customer General Motors. To put it in a nutshell, we continue to operate in a demanding market environment. which requires absolute discipline in cost management and the implementation of further strategic measures. Looking ahead with the financial highlights. As said, revenue declined by 8 percentage to EUR 128.9 million compared to last year's Q1. Adjusted EBIT came down to EUR 7.7 million and ended up in a margin at 6.0 percentage compared to 10.1 last year. Free cash flow could be increased to EUR 1.3 million compared to minus 3 last year, and our net leverage ended up by 2.0 multiple adjusted EBITDA. So since this, I would like to hand over to my colleague to Benjamin Retzer to give us more insight in the financials. Benjamin?.

Thank you very much, Markus. So also good afternoon, good morning, and thank you for joining our earnings call for the first quarter financial year 2025, '26. We appreciate your continued interest and support. And today, we will walk you through our financial and operational performance, provide insights into regional developments and share our strategic priorities moving forward. So we reported total revenue of EUR 128.9 million for the first quarter, which corresponds to a decline of EUR 11.2 million or minus 8% compared to the same period last year. It's important to note that foreign exchange effects had a significant impact on our top line. At constant FX rates, revenue would have been EUR 134.1 million reflecting a plus 4% increase year-over-year. Our series business contributed EUR 116.8 million accounting for 19.6% of total revenue. So this marks a decline of EUR 3.0 million or minus 2.5% versus prior year. But it is largely in line with the previous year level by volumes of a premium U.S. EV model, which somewhat offset lower business with other OEMs. So the revenue decrease explained in a nutshell, continued lower customer call offs, the ongoing discussions about U.S. tariffs have intensified existing uncertainties further dampening the customer sentiment and impacting order dynamics. Also, temporary plant closures at customer sites, especially in the Americas region, linked to strategic realignments amid ongoing U.S. tariffs discussions. And as already noted, slower-than-expected ramp-up curves of new programs across all regions as well as SOP relates. On the tooling side, revenue came in at EUR 12.2 million, which is EUR 8.1 million or minus 14.1% on lower than the previous year. This decline is attributed to a different and more back-end loaded project phasing compared to last year. Looking at the broader market. The latest available data indicates that light vehicle production increased by 2.6% year-over-year during the quarter. So while the market experienced a modest growth overall, our performance in the top end and premium luxury segment was affected by specific operational challenges and customer-related sectors. So over the last 12 months, our total revenue reached EUR 530.3 million, reflecting a 2.1% decline compared to the preceding 12-month period. Coming to the adjusted EBIT. The adjusted EBIT came in at EUR 7.7 million, which is EUR 6.5 million lower than the same period last year. This corresponds to a profit margin of 6% reflected in a significant year-over-year decline in profitability. So the primary driver of this decline was the continued weakness in top line performance, particularly in the Americas and Asia region where customer call-offs remained subdued and ramp-up curves across all regions for new programs progressed more slowly than anticipated. These regional challenges led to underutilization of capacity resulting in unfavorable cost absorption and pressure on our margins. In addition, the tooling business, which needs to be more volatile by nature, contributed less favorable this quarter due to project phasing differences compared to the prior year. And this further diluted the bottom line. Foreign exchange effects also played a role negatively impacting both revenue and profitability. The strength of the euro against key currency in our operating regions reduced the translated value of foreign earnings and adding to the margin pressure. From a more macroeconomic perspective, the quarter was marked by once again and still sluggish industrial output in several key markets ongoing geopolitical uncertainties, including the trade tensions and regional instability, which contributed to cautious customer ordering patterns. Despite these headwinds, we took proactive steps to protect our operating result. We initiated additional restructuring measures to streamline operations and reduce fixed costs. We intensified cost control initiatives across all regions and functions with a focus on central functions in Germany. And we benefited from customer compensations, one-off pricing adjustments tends to a minor extent, release of accruals, which helped to partially offset the negative impacts. Looking at the trailing 12 months, adjusted EBIT stood at EUR 42.4 million down EUR 6.5 million from the previous quarter, reflecting the cumulative effect of these challenges. In terms of free cash flow, we generated a free cash flow of EUR 1.3 million, marking a significant improvement of EUR 4.4 million compared to the same period last year. This positive development reflects both resilient operational performance and disciplined capital allocation. Cash flow from operating activities reached EUR 2.3 million ahead of the prior year by EUR 1.6 million. This improvement was driven by several key factors, mainly a higher profit for the period. Cash inflows from income tax repayments primarily related to corporate and trade tax refunds from prior years, resulting from excessive advance payments and an increase in other liabilities reflecting timing effects and accrual movements. However, these positive effects were partially offset by a reduction in trade payables of EUR 17.9 million, which reflects both lower purchasing volumes and payment timing and an increase in other receivables of EUR 11.3 million, including VAT and other nontrade items. On the investing side, cash outflows amounted to EUR 1.8 million which is significantly below the prior year's figure of EUR 5 million. This reduction is primarily due to lower capital expenditures, reflecting a more selective and phased investment approach in this current environment. As a result, free cash flow for the last rolling 12 months stood at EUR 32.9 million and marks an increase of EUR 4.4 million or plus 15.3% compared to the previous quarter. This underscores our continued focus on cash discipline even amid a challenging macroeconomic and operational backdrop. Capital expenditure, as already heard mentioned, totaled EUR 1.8 million, representing a EUR 3.2 million reduction compared to the same period last year. This decline reflects a shift to more selective investment aligned with current market conditions and internal priorities. As a result, the CapEx ratio stood at 1.4%, significantly below last year's figure of 3.6%. This lower ratio again underscores our disciplined approach to capital allocation, especially in the light of the ongoing macroeconomic uncertainties and regional volatility. Notably, nearly half of the quarterly CapEx, so approximately rightly EUR 0.9 million was invested in our plant in Pencil. These investments were predominantly close related aimed at supporting the ramp-up of new customer programs, enhancing production capabilities and ensuring readiness for future volumes. From a strategic standpoint, our CapEx decisions were influenced by several factors, as I already mentioned, global economic softness, particularly in industrial production and automotive demand. and a more general focus on preserving liquidity and financial flexibility amidst geopolitical and supply chain risks. So looking at the 12 -- the rolling 12-month period, the CapEx ratio declined from 3.2% to 2.7% based on a total revenue of EUR 53.3 million. So once again, these trends reflects our ongoing efforts to balance growth investments with cost efficiency while maintaining the ability to respond to market shifts. Total working capital, so that number stood at EUR 136.9 million, representing a minus 3.8% reduction compared to the prior year figure of EUR 142.2 million. This favorable development reflects our continued focus on operational efficiency, inventory discipline and cash flow optimization. The year-over-year improvement of EUR 5.3 million was primarily driven by a EUR 10.4 million reduction in inventories, largely attributable to lower stock levels in the Americas region. However, across all regions, we implemented rigorous working capital management measures in response to the sub-customer demand and slower ramp-ups. Another factor is a EUR 3.2 million decrease in trade receivables, reflecting a tighter credit control and huge efforts on our collection processes. These gains were partially offset by an increase in contract assets of EUR 4.6 million linked to the timing of revenue recognition, a EUR 2.4 million increase in tooling net reflecting ongoing tooling activity and project activities as well as project transitions. And a EUR 1.3 million reduction in trade payables, which is consistent with lower purchasing volumes and payment timing. As a percentage of last 12 months revenue, total working capital was 25.8% as of June '25 compared to 23.7% in the prior year. While this represents a slight increase, it's largely driven by temporary project-related effects and remains within a manageable range. Importantly, trade working capital, which excludes fully net and contract assets, improved significantly, declining from EUR 56.1 million last year to EUR 43.9 million. This reflects, again, our success in streamlining cooperational processing processes and enhancing cash conversion efficiency. Looking at these outstanding metrics, there is inventory outstanding improved to 40 days, down from 47 days last year. Highlighting our efforts to reduce excess stock underlying inventory levels with actual demand. base sales outstanding increased slightly to 34 days from 32 days, reflecting some timing effects in customer payments. and base payable outstanding declined to 51 days from 54 days, consistent with lower purchasing activity and payment cycle. Overall, our working capital performance in quarter 1 demonstrates a strong commitment to liquidity management, operational discipline and financial resilience especially in a market environment characterized by the volatility and macroeconomic uncertainty. Coming to the capital structure. So as of June 2025, gross financial debt stood at EUR 293.9 million, reflecting a year-over-year reduction of EUR 11.6 million. This decline demonstrates our efforts to strengthen the balance sheet, reduce leverage and again, maintain financial flexibility in that environment. Included in gross financial debt are liabilities, which amounted to EUR 43.5 million, down from EUR 55.6 million in the prior year. This reduction is primarily due to lease expirations, renegotiations and asset optimization initiatives. Our principal sources of liquidity remain robust. Cash and cash equivalents totaled EUR 143.2 million, up from EUR 134.4 million last year, supported by improved free cash flow generation and working capital management. Additionally, we maintained EUR 37.9 million in nonrecuactoring, slightly below the prior year's level of EUR 39.1 million, reflecting stable receivables financing activity. As a result, the net financial debt declined to EUR 150.7 million, a substantial improvement from EUR 171.2 million in the prior year. This reduction, again, underscores our commitment to deleveraging and preserving liquidity. However, the net leverage ratio stood at adjusted EBITDA, which is higher than the prior year's number of 1.8. This increase is, for sure, primarily to the decline over the last 12 months, driven by lower revenue and margin pressures in the key regions. While the ratio remains within acceptable limits, it highlights the importance of profitability recovery and continued cash discipline going forward. From a strategic perspective, our capital structure remains balanced and resilient providing the necessary flexibility to support our growth investments in core regions, navigate macroeconomic volatility and pursue strategic initiatives without compromising financial stability. So we continue to monitor market conditions closely and remain committed to maintaining a prudent financial policy with a focus on debt reduction, cost efficiency and value creation. So now having a look in our operating results in our regions. So from a geographic perspective, our performance in the first quarter fiscal year was mixed with Europe outperforming, while both Americas and Asia recorded some kind of declines. Revenue in Europe increased by EUR 4.6 million year-over-year, driven by stronger performance in both series and tooling business. The series growth was largely supported by the ramp-up of a major U.S. TV platform as well as higher customer compensations related to pricing and volume adjustments. Tooling revenue also contributed positively benefiting from project timing. The Americas region experienced a revenue decline of EUR 13.7 million year-over-year. And this shortfall was primarily due to a significant drop in tooling revenue. stemming from different project phasing compared to the prior year. Series revenue in the region was slightly below prior year impacted by a 3-week customer plant shutdown and an adverse FX effect which reduced and -- or which reduced the translated value of U.S. dollar-denominated sales. Revenue in Asia declined by EUR 2.1 million year-over-year, primarily due to weaker series business. The drop was driven by ongoing lower call-offs for key models such as the BMW X5 [ and 3 ] series and a sluggish ramp-up of the Volvo S90. Asia remains a strategically important but volatile region with performance closely tied to OEM production schedules, local market dynamics and regulatory developments. So the recent softness reflects broader challenges in the Chinese automotive market, including inventory overhang and a competitive pricing pressure. Okay. Then having last but not least, may look into the margins and adjusted -- adjusted EBIT in Europe came in at minus EUR 3.3 million compared to minus EUR 1.2 million in the prior year. The decline was primarily driven by a diluted project or tooling business, continued weak cost coverage resulting from ongoing poor customer call-offs, which led to underutilization of our production capacity and a high proportion of fixed and overhead costs from central departments, which remained largely unchanged despite the lower activity levels. Despite these pressures, as already heard, customer compensation payments and cost control initiatives helped and will help to partially mitigate these negative impacts demonstrating our ability to respond swiftly to demand fluctuations and protect profitability. Adjusted EBIT in our Americas region was EUR 10.4 million, down from EUR 14.7 million in the prior year. The shortfall was predominantly attributable to the drop in revenue, particularly in the tooling segment. The year-over-year variance reflects the timing of key projects in the absence of a highly profitable contract that had positively impacted last year's performance. Series business also faced headwinds as all, including a 3-week customer plant shutdown and adverse FX effects with further compressed margins. Adjusted EBIT in Asia remains relatively stable at EUR 0.5 million compared to EUR 0.7 million in the prior year. While revenue declined due to lower call-offs for key models, as already heard, these effects were largely offset by a tight cost management and lean operational execution. So Asia's performance reflects already and again, a disciplined approach to cost control even in the phase of demand volatility and that regional market challenges in Asia. So on a group level, LTM adjusted EBIT stood at EUR 42.4 million, down EUR 6.5 million from the previous quarter and resulting in a profit margin of 8%. So in summary, our Q1 was marked by customer site disruptions and regional softness, FX headwinds and project timing effects, which impacted both revenue and profitability. However, we demonstrated resilience through a strong cash flow generation, improved working capital discipline and a solid capital structure. Looking ahead, our focus remains on driving operational execution and operational efficiency and supporting profitability, financial stability and agility through disciplined investment and customer collaboration. So we are confident in our ability to navigate the current environment and are actively working with our partners to align the production schedules and improve visibility. So that brings me to the end. So we thank you for your continued trust and support. And now we will open the line for your questions.

[Operator Instructions]. The first question comes from the line of Alexandre Raverdy, Kepler Cheuvreux.

The first one is on profitability and what to expect for the rest of the year because from a seasonality standpoint, Q1 is typically one of the strongest, if not the strongest of the year. So I understand that part of the 6% margin was driven by a temporary negative effect. So can we assume that Q1 was the low point for margins and what to expect for the rest of the year? That's the first question. And secondly, on CapEx, 1.5% CapEx to sales ratio is quite low. So I understand you can't temporarily cut CapEx, but what do we expect as well for the rest of the year? Is it a sustainable number?