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

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the half year 2025-'26 results, which will be presented by the CEO, Markus Wittmann; and CFO, Benjamin Retzer. I'm Lorenzo, the Chorus Call operator. [Operator Instructions] At this time, it's my pleasure to hand over to Markus Wittmann. Please go ahead, sir.

Thank you very much, Lorenzo. So ladies and gentlemen, dear shareholders, thank you for joining us today for the half year reporting of Novem Group. The first half of 2025 has presented us with a challenging market environment. Our revenues for the quarter 2 reached EUR 125.5 million, reflecting a year-over-year decline of nearly 10 percentage. This downturn is primarily driven by continuous market weakness, especially in the Tooling segment, where project delays have significantly impacted on our results. In contrast, our serial production business has shown signs of stabilization. Additionally, external disruptions have further strained our performance. The cyberattack at Jaguar Land Rover forced production halts directly affecting our supply chain. Similarly, BMW's partial production stoppage in China due to subdued demand contributed to reduced volumes and revenue. These factors have necessarily influenced our EBIT, which closed at 6.1 percentage for the period. However, our strict cost management, particularly focused on central function is beginning to yield in a manifest result. One of the most encouraging development is our free cash flow, which improved significantly to EUR 15.8 million compared to EUR 3.6 million in the same period last year. This demonstrates our resilience and operational discipline. Despite the difficult market conditions, we successfully secured new and attractive orders, including from new customers. We welcome McLaren as a new client in our customer portfolio. Furthermore, our strategic expansion into a broader mobility market is bearing fruit with our first predevelopment order from Harley-Davidson. With the serial business no longer declining, we believe we have reached the bottom of the cycle. Nevertheless, project postponements by various OEMs continue to weigh in our outlook. Through continued rigorous cost control, we aim to stabilize performance at current level for the full year, even when we see a weak Q3 ahead of us. Our broad strategic positioning across the mobility sector will support this stabilization even if the impact is not immediately visible in our financials. Saying this, I'd like to go ahead with the financial highlights of the quarter 2 and starting, as mentioned already with revenue, which ended in Q2 at EUR 125.5 million, which is, as I said, a decline of around about 10 percentage. Adjusted EBIT ended up at EUR 7.7 million with a margin of 6.1 percentage compared to last year's 8.6 percentage. Our free cash flow increased to EUR 15.8 million and net leverage ended up in slightly higher at 2.0 multiples adjusted EBITDA. Going ahead with the financial highlights of the half year, revenue came up to EUR 254.5 million, which is a 9% decrease of last year's. Adjusted EBIT ended up at EUR 15.4 million and in margin at 6.0% compared to last year's 9.4%. Free cash flow, as already said, very good with EUR 17.2 million and net leverage in line with Q2 at 2.0 multiple compared to last year's, we had 1.9. So saying this to the highlights, I'd like to hand over to my colleague, Benjamin, to give you more financial details. Benjamin, please.

Thank you very much, Markus. So also good afternoon, good morning from my side, and thank you for joining our earnings call for the second quarter of our financial year 2025-'26. So I will walk you through our financial and operational performance, provide you insights into the regional developments and share our outlook and strategic priorities moving forward. So in the second quarter of our financial year '25-'26, total revenue amounted to EUR 125.5 million, representing a decline of minus EUR 13.8 million or minus 9.9% compared to the same period last year. At constant foreign exchange rates, revenue would have been higher by EUR 4.2 million, reflecting a 3.5% increase year-over-year. Series revenue came in at EUR 116.1 million, so down EUR 3.4 million or minus 2.9% versus prior year and accounted for 92.4% of total revenue. So the decrease was mainly driven by ongoing weak customer call-offs, most notably in Asia. And additionally, as already mentioned, temporary production halts at JLR following a cyberattack, and at BMW China led to revenue losses for the quarter under review. These disruptions underline the vulnerability of global automotive supply chains to external shocks even as OEMs strive to stabilize operations. Looking at the broader market, the light vehicle production grew by 4.4% year-over-year during the quarter. However, the industry continues to face structural challenges. OEMs recalibrating production schedules amidst supply chain volatility and geopolitical uncertainties. The premium and luxury segments under pressure due to uneven consumer demand and delayed program ramp-ups and accelerating electrification and digitalization trends creating transitional inefficiencies and uneven regional growth. Tooling revenue contributed EUR 9.5 million, significantly below the previous year by minus EUR 10.4 million or minus 52.3%, primarily due to the project delays and back-end loaded phasing. So also a trend reflecting the OEM caution in committing to new tooling and project investments. On a last 12 months basis, total revenue stood at EUR 516.5 million, showing a slight decline of 2.6% compared to the previous quarter. While the market experienced growth, our performance in the top end and premium luxury segment was affected by customer-related factors, highlighting the importance of operational agility and strategic positioning. The adjusted EBIT in quarter 2 remained broadly in line with the preceding quarter, delivering a 6.1% margin compared to 8.6% in the prior year. The year-over-year decline reflects persistent margin pressures across the automotive supply chain. So lower turnover continued to weigh on our profitability, resulting in a weak cost coverage and underutilized capacity, a challenge driven by OEM production adjustments amid volatile demand. The Tooling segment contributed less favorable this quarter due to project phasing differences versus the prior year, further diluting the bottom line. Importantly, the operating result was not materially impacted by one-off items, underscoring that the performance was rooted in core operations. Notably, recently implemented cost control initiatives, particularly in central functions in Germany are starting to take effect. These measures include especially tighter overhead management, process streamlining and selective investment prioritization. Looking ahead, maintaining profitability will require continued focus on operational excellence, disciplined cost management and leveraging strategic partnerships to secure new business opportunities in growth segments and emerging mobility solutions. The free cash flow for quarter 2 reached EUR 15.8 million, marking a substantial improvement compared to the prior year. This strong performance underscores our ability to generate liquidity even in a challenging revenue environment, underlining Novem's resilience and reflects disciplined capital allocation combined with effective working capital management. The key drivers of operating cash flow in the amount of EUR 17.3 million are the reduction in other assets through tighter control over non-trade items and improved management of VAT and miscellaneous receivables. The increase in provisions of EUR 10.5 million is mainly attributable to a reduction in provisions in the prior period in the amount of minus EUR 7.1 million and a return to a more normalized provisioning in the reporting period under review as well as additional positive timing effects in the amount of EUR 1.4 million from accrual movements. These gains were partially offset by lower profit for the period and other noncash expenses. The cash outflow for investing activities amounted to minus EUR 1.5 million, well below last year's level, primarily due to the reduced capital expenditures. This selective investment approach aligns with our strategy to preserve liquidity while continuing to support growth projects, particularly in our plant in Pilsen in the Czech Republic. So on a last 12 months basis, free cash flow improved to EUR 45.1 million, up EUR 12.2 million or 37.2% compared to the preceding quarter. As already mentioned, this trajectory demonstrates resilience and positions us well to balance short-term challenges with long-term strategic priorities. The capital expenditure totaled EUR 2.4 million, which is EUR 2.1 million lower than the same period last year. The underlying CapEx ratio stood at 1.9%, down from 3.3% in the prior year, again, underscoring our disciplined approach. Nearly half of the quarterly investments, approximately EUR 1.2 million were directed towards our Pilsen facility, as already mentioned, primarily growth related to support the ramp-up of new customer programs. Beyond the investments in Pilsen, the majority of CapEx was linked to other strategic projects and infrastructure preparation for upcoming programs. On a last 12 months basis, the CapEx ratio declined from 2.7% to 2.4%, reflecting our commitment to maintaining this agility and prioritizing investments that deliver long-term value while safeguarding liquidity. As of September 2025, the total working capital stood at EUR 137.2 million, so slightly lower than last year by minus 1.5%. Last year, in absolute numbers, we stood at EUR 139.3 million. So this modest improvement reflects our ongoing efforts to optimize liquidity and enhance operational efficiency. The year-over-year deviation of EUR 2.1 million was primarily attributable to lower inventories driven by a decline in raw material stock levels, reflecting tighter inventory discipline and alignment with reduced production volumes. However, across all regions, we implemented rigorous working capital management measures in response to the subdued customer demand and slower ramp-ups. A further point to mention for that deviation is a decrease in contract assets linked to timing of project milestones and revenue recognition. These positive effects were partially offset by lower trade payables resulting from the before-mentioned reduced purchasing volumes and payment timing; higher trade receivables, reflecting customer side timing effects and the tooling net position related to ongoing tooling activity and project transitions. As a percentage of last 12 months revenue, total working capital recorded at 26.6% compared to 24.5% in the prior year. While this represents a slight increase, it remains within a manageable range and is largely attributable to the decline in revenue. Trade working capital, excluding the tooling net and the contract assets position, showed a positive trend, improving to EUR 47.8 million from EUR 49 million last year. Then the days outstanding metrics. So the DIO improved to 39 days from 44 days last year, highlighting again our efforts to reduce excess stock and align inventory levels with actual demand. And DSO stable at 31 days versus 30 days prior year, and the DPO declined to 39 days from 46 days, reflecting lower purchasing activity and payment cycles. Overall, our working capital performance in quarter 2 demonstrates a strong commitment to liquidity management and financial resilience, especially in a market environment characterized by regional volatility and macroeconomic uncertainty. Coming to the capital structure. So the gross financial debt stood at EUR 292.1 million, which is EUR 9.8 million lower than the prior year's figure of EUR 301.9 million. And again, this demonstrates the ongoing efforts to strengthen the balance sheet. Lease liabilities included in gross financial debt amounted to EUR 41.5 million, also down from EUR 51.9 million in the prior year. Our liquidity position remains one of our strongest assets and key differentiator in the current market environment. So as of 30 September 2025, the cash and cash equivalents totaled EUR 153.4 million and therefore, up from EUR 132.4 million last year. In addition, we maintained EUR 37.4 million in nonrecourse factoring, slightly below the prior year's level of EUR 40.3 million, demonstrating stability in our receivables financing activities. As a result, net financial debt was EUR 138.7 million, showing a significant improvement compared to EUR 169.5 million in the prior year. So this reduction underscores our commitment to deleveraging and preserving financial flexibility. The net leverage ratio stood at 2.0 multiples adjusted EBITDA, so broadly in line with the prior year's 1.9. And this slight movement reflects, as mentioned, a stable capital structure despite margin pression. While EBITDA declined over the last 12 months due to the lower revenue and cost coverage challenges, this was effectively counterbalanced by a strong cash generation and liquidity management. So looking ahead, continued profitability recovery, combined with sustained cash discipline will remain key priorities to further strengthen our balance sheet. Then coming to the operating segments. So the segmental revenue declined across all regions in the second quarter with a total decrease of minus EUR 13.8 million year-over-year, driven primarily by the Americas region. This development reflects the impact of project phasing and temporary production disruptions across key markets. So the revenue in Europe decreased by minus EUR 5.8 million compared to the prior year, predominantly due to differently phased tooling business. Series business remained stable at last year's level, supported by ongoing customer programs such as the Series business with a major U.S. EV manufacturer and pricing adjustments. The Americas recorded a revenue decline of minus EUR 6.9 million year-over-year. And similar to Europe, this shortfall was mainly attributable to project phasing effects in the Tooling, while Series sales remained flat. Despite these challenges, the region continues to represent the largest share of group revenue. In Asia, the revenue fell by minus EUR 1.2 million year-over-year, negatively impacted by Series business. This was primarily driven by continued weak call-offs, for example, BMW X5 worsened by the before-mentioned temporary production halt as well as lower volumes for the Mercedes-Benz E-Class. These factors underline the volatility in the Chinese premium segment and the sensitivity of regional performance to OEM production schedules. Adjusted EBIT showed a similar development to revenue across all segments with a total decrease of minus EUR 4.3 million versus the prior year, reflecting that volume-related inefficiencies and margin pressures. Adjusted EBIT in Europe remained negative at minus EUR 7.3 million compared to minus EUR 6.9 million last year. So the operating performance in Europe was again affected by the poor top line development, while fixed costs at the central office in Germany, in particular, could not be scaled down in line with the decline in revenue. However, also what we heard already today, continued cost management and restructuring measures helped to partially mitigate these negative impacts. The Americas region delivered a strong profitability with adjusted EBIT of EUR 15.0 million, slightly below the prior year's EUR 17.3 million. The shortfall was primarily impacted by an adverse product mix, U.S. tariffs and a negative FX effect. Adjusted EBIT in Asia came in at more or less breakeven, down from EUR 1.6 million last year. The decline reflects lower revenue caused by weak call-offs for our key models' temporary production halts. So on a group perspective and on a last 12 months basis, adjusted EBIT declined by minus 10.2% from EUR 42 million to EUR 38.1 million, reflecting these cumulative effects of revenue softness and cost absorption challenges. So in summary, our quarter 2 was marked by continued market softness, project phasing effects and temporary production disruptions, which impacted both revenue and profitability. Despite these headwinds, we delivered strong progress in our key financial areas in terms of a robust free cash flow generation, improved liquidity and reduced net debt and a stable capital structure, maintaining leverage within acceptable limits. So looking ahead, our focus remains on driving operational execution and efficiency, preserving financial flexibility and supporting profitability recovery through cost discipline and leveraging strategic opportunities, including new business wins, as mentioned by Markus. So we are confident in our ability to navigate the current environment and, for sure, continue to work closely with all our customers. So thank you for your continued trust and support, and we'll now open for -- open the line for your questions.

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

The first one relates to the outlook because you mentioned a weak Q3 ahead. So could you please elaborate on that, maybe giving more details between series and tooling revenues and also an outlook by region, and what to expect versus the 6% margin that you have reported year-to-date? And the second question is on the new business wins. First is McLaren. Can you give us an idea on the start of production and the content per vehicle? I guess, somewhere between '27 and '28, which would be in line with the new model launches, but just a confirmation would be helpful. And secondly, on this development project with Harley-Davidson. Two-wheelers, I think, were not really a vertical that you flagged in the past. So could you please elaborate a bit more on the rationale, the components you would address and also the content per vehicle opportunity?

So Alexandre, thank you for your question. So in terms of your first question, to give you a kind of flavor in terms of outlook. So you know that we are not giving a forecast towards year-end closing. But nevertheless, as you see also in the past, the quarter 3 is for sure, which is calendar year quarter 4, is a bit under pressure in terms of revenue, especially as we have Thanksgiving in November and then only half of the month in December due to the winter period and then the closure of the production plant. So I think that's more or less in line with what you have seen in prior times. But for sure, therefore, a kind of weak quarter 3 because we are also in that quarter 1 and quarter 2, what we have reported recently, we are a bit below the prior year's numbers and, therefore, that was that linkage to a weak quarter 3. But I think it's in line with the expectations of also the prior years. For sure, what we are also seeing and what we also stated out during the presentation is the Tooling business and the postponement of projects and project closures. So we faced that already during the first half year, and we will -- for sure, we'll see that during quarter 3. And as we mentioned, it's more back-end loaded. So it will be more or less accumulated in our quarter 4, which is then the quarter 1 calendar -- next calendar year. So Tooling business will majority materialize in that fourth quarter and not really supporting the quarter 3. So that's more or less in regards of that outlook. And for sure, but what we mentioned and what we highlighted is the back-end loaded Tooling segment, this for sure will help us at the end of the day and for the full year perspective in terms of our bottom line to, for sure, improve that number a bit. For sure, we see already the effects starting with that cost management and cost control initiatives we rolled out, especially in the central offices here in Germany, that will also yield and support the bottom line towards a higher number towards year-end based and comparable to the consensus. So I think that's more or less the outlook what we can give in terms of quarter 3 as well as then the full year perspective in terms of our bottom line. The new business wins, we stated, I will comment on the McLaren business. So yes, that's true. We saw that messages also today morning with the McLaren business, and that's in line what we read in the news. Also that SOP will then take place '27, '28. And yes, we are quite confident and happy to be back in that business with McLaren. We had already business with McLaren prior times and a couple of years ago and now back in that business also with that relaunch of their portfolio, and we are quite happy about that win and that business with McLaren. And then I think Markus will comment on the Harley-Davidson.

Thank you, Benjamin. Alexandre, I will talk about Harley-Davidson. So as you may know, so we already last year broadened our portfolio when we went into the exterior parts that was where we have already one big business in place. And at this time, we already took -- broadened our portfolio and spoke to different mobility manufacturers. So one of this is also 2-wheelers, yes. And we have our [ PUR ] technology in place, which is able to be also in exterior. And for sure, 2-wheelers or everything is in exterior. And with Harley-Davidson, we are developing now for a new model, 2 parts in the front of this 2-wheeler. That's what we are doing. So as I said, it is a predevelopment, but it's looking very promising that it will become serious production. Hopefully, we could answer your questions.

Yes, you did.