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

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Q1 2024-2025 results of Novem Group, which will be presented by the CEO, Markus Wittmann; and CFO, Dr. Johannes Burtscher. [Operator Instructions] I would now like to turn the conference over to Markus Wittmann. Please go ahead, sir.

Thank you. Good afternoon, ladies and gentlemen, and welcome to Novem's Q1 results presentation. The first quarter has proven challenging with the revenue standing at EUR 140 million. We are marking a 20% decrease compared to previous year. This contraction is systematic of turbulent market conditions that prevail across all regions, with Europe bearing the brunt of these headwinds. The decline in sales can be attributed to a confluence of economic factors and the general hesitancy in customer spending. Despite this revenue shortfall, we have successfully secured a solid EBIT margin of 10.1% in the first quarter. This outcome is a direct result of our rigorous cost management, HL production adjustment and customer compensation. However, our financial position has been impacted by a Tier 1 insolvency, leaving us with outstanding receivables that we are actively addressing. On a bigger note, we have achieved a significant milestone by winning the contract for the Mercedes GLE for the Chinese market. This ensures that Novem will supply the Mercedes flagship model in U.S. and China. Furthermore, we are marking robust progress with our preparations for the upcoming launches in Europe and America, adhering strictly to our time line. As we look to the horizon, the production remains unchanged. We anticipate the continuation of these challenging times for the coming months. Our commitment to excellence and our swift initiatives position gives us confidence to navigate through these turbulent waters. Going ahead with the financial highlights. As mentioned, for the Q1 we achieved a revenue of EUR 140 million, what is minus 20% compared to last year. With EUR 14.2 million EBIT we achieved a solid EBIT margin of 10.1% compared to last year's 11.4%. Free cash flow decreased to minus EUR 3 million, and net leverage increased to 1.8x EBITDA. For the details of the group results, I'd like to hand over to Johannes to give you a brief overview.

Thank you, Markus. And also from my side, a warm welcome to everyone. As always, I would like first to take you through our group results for Q1 '24-'25. As already mentioned, the new financial year started as the previous year-ended with a very soft top line driven by lackluster demand and low consumer sentiment. We could see weaker call-offs across many key platforms, including and above all, the luxury upper-class models like the Mercedes-Benz S-Class as a representative example. While publicly available data like IHS or LMC reveal a decline in light vehicle production, overall, the premium sector is even more affected depending on the underlying product, customer and regional mix. Geographically, the decline was once again most pronounced in Europe. The chart at the bottom-left illustrates the sustainably lower revenue over the last 3 quarters in the range between EUR 140 million and EUR 145 million on average opposed to EUR 170 million and EUR 175 million, what we saw in the past. Despite the significantly lower revenue, Novem generated an adjusted EBIT of EUR 14.2 million at a double-digit profit margin of 10.1% for the underlying quarter. While in absolute terms, the adjusted EBIT came down due to the lower volume, the quality of earnings remains solid still. Tight cost management, as Markus already outlined, including the restructuring measures, both in Bergamo and Vorbach last year contributed well to this achievement. However, personnel costs, in particular, could not be amended in proportion to the lower revenue, which is why the percentage of personnel costs over operating performance increased to 27.6% compared to 25.7% last year. All other cost ratios developed favorably dull. Free cash flow of minus 3% for the first quarter was mainly affected by higher stock levels, especially in Americas because of extended customer plant holidays ahead of the Independence Day, but also the buildup of tooling. Both effects have a timing, but not a structural impact on free cash flow. In addition, higher capital expenditure for the upcoming launches weighed on the free cash flow for the period under review. In general, we can see with a view on our free cash flow, the preinvestments. Novem is currently undertaking for the future and the growth to come in the upcoming quarters. With regards to capital expenditure, we invested EUR 5 million in Q1, the vast majority of which in our largest facility in Mexico. Technologically, the capital expenditure is mainly used for industrializing production processes and achieving a higher degree of automation. As a result, CapEx ratio of 3.6% has well exceeded the prior year at 1.9% only. Concerning working capital, the increase of 1.2% to a level of EUR 142.2 million was strongly driven by higher tooling net, as already mentioned, with both higher tooling related receivables and less advanced payments from our customers. It is worth mentioning that trade receivables came down again as a result of the lower volume. But at the same time, we also faced an increase in overdue balances. As Markus already mentioned, the most recent example with the insolvency of a Tier 1 supplier underlines very clearly the importance of closely monitoring the payment behavior of our customers. Net financial debt rose from last quarter of EUR 164.9 million to EUR 171.2 million sequentially. As a consequence, net leverage ratio increased from 1.6x to 1.8x adjusted EBITDA. Liquidity remained strong at EUR 134.4 million, down by EUR 7.1 million compared to the previous quarter. In the following, I would now like to outline our results in more detail along the operating segments. In Q1 '24-'25, we could see a continuation of the trading pattern of the past. Firstly, structurally weak business in Europe across the board. Secondly, strong development in Americas, and thirdly, low but still stable performance in Asia, still being in a phase of product and customer mix changes. Now obviously, with a view on this large deviation in Europe, I'd like to add that the sharp decline in this region of almost EUR 40 million in the quarter must be seen very differentiated with EUR 22.5 million lower series, but also EUR 16.9 million lower tooling. So almost half-half between series and tooling. Although this is a significant project phasing elements in the overall deviation because of tooling, the weak market environment in Europe is clearly visible, once again across almost all platforms in our portfolio. In line with the revenue development, the profit is basically generated in Americas with a contribution of EUR 14.7 million adjusted EBIT. The profit margin of 19.6% clearly outperformed all other regions. And even more, given the extended customer plant holidays in Americas and the relatively strong Mexican peso, which weighs high on our cost base in Queretaro, our plant in Mexico, THIS performance could be even overachieved. While Europe generated a small loss of minus EUR 1.2 million adjusted EBIT on the back of the low revenue, Asia delivered a modest result of EUR 0.7 million adjusted EBIT. With this, we would like now to open the Q&A session. Thank you.

[Operator Instructions] Gentlemen, so far there are no questions from the phone.

Okay. Thank you, Safar. Thank you for participating this meeting, this results presentation, then we will close this call. Thank you also to Johannes.

Yes, I'd like to say things as well. On a personal note -- thank you -- just 1 minute left. I'd like to take this time just on a personal note before we close this call, this was my actually last results presentation as CFO of Novem. For the next results call, Markus Wittmann will be supported by Benjamin Retzer, as you could all read in our ad hoc release who is already well prepared to take over my role as new CFO. I wish to say thank you to everyone for the trust that you have placed in me. Thank you. Goodbye.

Thank you, Johannes, and goodbye.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.