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

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the half year 2024/2025 results of Novem Group, which will be presented by CEO, Markus Wittmann and CFO, Benjamin Retzer. [Operator Instructions] I would now like to turn the conference over to Markus Wittmann. Please go ahead, sir.

Thank you very much, and good afternoon, ladies and gentlemen, to Novem's half year report. The revenue in Q2 was EUR 139.4 million, representing a decrease of 18.9% compared to last year. This decline is attributed to an ongoing low demand. Market conditions remain challenging, particularly in Europe and Asia. The top line was significantly impacted by extended holidays in Asia and partially by technical issues at a major OEM. Additionally to that, Hurricane Helene had an indirect effect to 2 customers to us and 2 customers had to shut down their production. The low revenue has had a substantial impact on our adjusted EBIT, which stands at EUR 12 million, equating to 8.6%. We continue to contest these challenges with cost management, production optimizations and customer compensation payment. Despite adverse conditions, we have successfully entered the Van market for the first time. And we see further opportunities in this luxury MPV segment. Nevertheless, the short-term outlook remains challenging. because of low and volatile call-offs. And at the moment, there is no change in a visual range. I'd like to continue with Q2 financial highlights. As said, our revenue for Q2 '24/'25 ends up with EUR 139.5 million compared to last year's EUR 171.9 million, ended up in an adjusted EBIT at EUR 12 million and 8.6% compared to last year's 10.4%. Free cash flow stood at EUR 3.5 million, and it ended up in a net leverage, 1.9x adjusted EBIT compared to last year's 1.4x. Going ahead with half year highlights, revenue, EUR 279.5 million compared to last year's EUR 347.1 million. Adjusted EBIT EUR 26.2 million, and the margin ends up with 9.4% compared to last year's 10.9%. Free cash flow, EUR 0.6 million and net leverage, as I said in -- already in Q2, 1.9x. Yes, and that's it. I'd like to hand over to Benjamin for the detailed financial report. Benjamin?

Thank you very much, Markus. I would also like to take this opportunity to welcome you as the new CFO (sic) [ CEO ] of the Novem Group to today's half year results presentation. And together, we will go through all the details of the group results, starting with the revenue development. Total revenue of EUR 139.4 million in quarter 2, decreased by minus EUR 32.5 million or minus 18.9% in comparison to last year. In terms of series, the revenue of EUR 119.5 million was well below prior year by minus EUR 30.1 million or minus 20.1%. This drop in series business was, and this is no big surprise related to the ongoing weak customer call-offs, especially in Europe and Asia. In addition, and as already heard by Markus, top line was adversely hit by pulling forward customer planned holidays in China into September as part of the Golden Week, partly due to the technical actions at a major OEM to absorb that integrated braking system issues. Furthermore, and now looking into the Americas region. Hurricane Helene led to production downtime in total 5 working days for several customers in the U.S. and resulted in further sales setbacks. FX effects had also a certain negative impact and would have been by EUR 2.5 million or 1.8% higher. Revenue tooling of EUR 19.9 million declined by minus EUR 2.4 million or minus 10.9% against prior year, mainly driven by a different project phasing. On a 12-month basis, total revenue recorded at EUR 567.9 million and therefore, this decreased by minus 5.4% compared to last quarter. In summary, we are far from satisfied with this picture. But for the time being, it suggests that this is the current level we can reach in terms of the top line. This development is, of course, also visible in the adjusted EBIT, both in absolute terms and percentage wise, which came out at EUR 12.0 million or 8.6% for quarter 2. On a year-to-date basis, we see an adjusted EBIT margin of 9.4%, which is still a solid margin level, given the fact that the turnover has reduced by roughly minus 20% on a year-on-year comparison. Compared to quarter 1 in which an adjusted EBIT margin of 10.1% was reported, the margin dilution to 8.6% was also influenced by a less profitable project business in this quarter as a double-digit adjusted EBIT margin was achieved in the core business at the level comparable to last financial year. Cost reduction developed favorable, but nonetheless, to a lower extent than the revenue decline, which burned the adjusted EBIT and also diluted the margin. We were, for sure, seeing positive effects of the restructuring measures introduced in the previous year. But on the other hand, we were hampered by the fact that we have not been able to reduce personnel costs as quickly as sales have fallen in order to achieve a certain level of productivity appropriate to the low sales volume. In addition, adjusted EBIT was once again negatively impacted by an unfavorable product mix as well as the model changes. In return, the bottom line was secured and protected by customer compensations in the amount of a mid-single-digit million number and we are quite confident to increase these figures further. Here, we can see the free cash flow performance. Despite the improvement against last quarter, the free cash flow of EUR 3.6 million in quarter 2 fell short of last year by minus EUR 18.6 million or minus 83.8% which is mainly due to the negative development of cash flow from operating activities, which came out at EUR 6.9 million and accounted considerably below prior year by minus EUR 17.8 million. Key driver for this were reduced provisions, minus EUR 8.3 million, increased inventories with a negative effect of minus EUR 8.1 million and lower trade payables by minus EUR 6.8 million. The decrease in provision was mainly related to prior year's restructuring costs in Bergamo as well as tax payments in Germany as the payment backlog due to tax suspensions related to the corona time has now been settled. Lower trade payables were mainly driven by the lower volume and for the increased inventories, a couple of reasons needs to be mentioned here. Firstly, as already heard, due to the hurricane and the associated production downtime, shipments were discontinued at short notice and secondly, but mainly tooling were built up. Cash outflow from investing activities of minus EUR 3.3 million stood above prior year's number of minus EUR 2.4 million due to lower interest received also and mainly volume driven. Capital expenditure of EUR 4.5 million kept the level of previous year and most of it was invested in the operations in Querétaro with an amount of EUR 2.9 million, also in line with previous quarter. In total, investments were made of around EUR 3.0 million, especially for the ramp-up of the acquired business with a major U.S. EV manufacturer. Based on the already mentioned poor top line, the CapEx ratio rose from 2.7% last year to 3.3% this year. Overall, last 12 months capital expenditure of EUR 17.7 million developed almost unchanged to the first quarter of 2024, '25 with also an amount of EUR 17.7 million. In terms of working capital, total working capital accounted slightly above last year at EUR 139.3 million compared to EUR 136.3 million in prior year, with a deviation of minus EUR 3.0 million and stemmed from different factors and developments. On the one hand side, lower trade payables was minus EUR 13.6 million and a higher tooling net result, also minus EUR 9.5 million. And on the other side, lower trade receivables with a positive effect of EUR 15.2 million and the lower stock level also with a positive effect of plus EUR 5.4 million. The decline in trade payables was mainly attributable to lower volume and the lower trade receivables, mainly due to top line. With regard to the higher tooling net amount. This can be understood as an indicator for future series business or new platforms to come. Again, in particular, in relation to the before-mentioned business with the U.S. manufacturer. Therefore, looking at the pure trade working capital, so to say, without tooling net and contract assets, it developed so far favorable from EUR 56.0 million to EUR 49.0 million on a year-on-year basis. So having a further look at our capital structure, the gross financial debt of EUR 301.9 million increased considerably by EUR 13.2 million in comparison to the same reporting date last year. As previously reported, the increase was mainly driven by a significant rise in lease liabilities to EUR 51.9 million, which is a change of EUR 12.7 million on a year-on-year basis due to the renewal of lease contracts, in particular at our premises in Mexico in quarter 3 last year. The cash position came in at a very robust number of EUR 132.4 million supported by EUR 40.3 million from a non-recourse factoring program. Therefore, the net financial debt stood at EUR 169.5 million and showed a steep increase compared to prior year with an amount of EUR 152.2 million. The net leverage ratio, as already heard of 1.9x adjusted EBITDA remained at a higher level than previous year with EUR 1.4 million but still within a corridor that allowed us to maintain the actual margin spread. So looking into our operating segments, it needs to be noted that the Americas region remained the backbone of the group accounting for more than half of the total revenue with again an increase in turnover while both Europe and Asia declined as already heard and similar to last quarter. The poor top line in Europe with minus EUR 28.4 million on a year-on-year basis was mainly attributable to revenue series due to the ongoing weak customer sentiment as well as the phaseout of larger programs like the EOP of BMW 5 -- Series and Porsche Panamera as well as lower revenue of the Mercedes Benz E-Class and S-Class. The reduced revenue in Asia on a year-on-year comparison in the amount of minus EUR 7.2 million, predominantly caused by the EOP of the 5-Series and the model change to -- or of Mercedes-Benzes E-Class, whereas the positive development in Americas, plus EUR 3 million was mainly driven by a tooling business, while revenue series showed a slight decrease and here also as already heard and mentioned caused by the downtimes of various major OEMs due to that hurricane. Again, the same picture when it comes to the adjusted EBIT. Negative performance in Europe and Asia was only partly compensated by a higher profit contribution in Americas. Referring to Europe, the adjusted EBIT of minus EUR 6.9 million was, again, loss-making caused by significantly lower revenue and therefore, volume-related inefficiencies as well as a negative product mix. As already said, cost savings and customer compensation payments helped to mitigate these effects, but only partly. Adjusted EBIT of EUR 17.3 million in Americas, outperformed prior year, benefiting from the release of accruals with an amount of EUR 1.3 million as well as ongoing lower input costs. In Asia, the adjusted EBIT of EUR 1.6 million developed negatively by EUR 1.0 million also because of the lower top line in both series and tooling. So yes, this brings us already to the end of today's presentation or at least slides. To summarize, the short-term adversities, as already highlighted by Markus remain and the economic situation has worsened further. But a solid order intake in the range of a mid-double-digit million for the first half year. And for sure, the ramp-up of the platform with U.S. EV manufacturer in our fourth quarter provides a sense of perspective. So, so far, thank you for taking the time to participate in the call, and we are now looking forward to addressing any questions you may have.

[Operator Instructions] Our first question comes from [indiscernible] from Kepler Cheuvreux.

I will have 3 questions to pose you. The first one is concerning the profitability for the rest of the year. So if you're expecting to reach a 10% EBIT profitability over the year. The second one, is concerning an update on the ongoing talks around the potential delisting and what could prevent this from happening? And the third one is concerning Tesla. So the Tesla contract if you are expecting it on the Q4. And what will be the revenue contribution either this year or from the next year?

Thank you very much, [indiscernible], for your questions. So in terms of your first question. So at the end of the day, as you know, we do not give any forecast or guidance so far. But to further elaborate here and as already mentioned and said during the presentation and during the slides, so at the end of the day, we suggest in terms of revenue that this is the level right now we see also going forward. But at the end of the day, yes, nobody can really have a look into the future. But that's the level in terms of revenue. And also in terms of adjusted EBIT margin, for sure. Also here, no detailed guidance will be given and as already known so far, but for sure that's more or less a threshold we can and we will achieve or we would like to achieve to have double-digit margin. So that's in terms of the first question.

To the second question, delisting, I can tell you for today by today, there are no news to our talk as of 2nd of October. So as soon as we have anything new, we will inform you accordingly.

And in terms of your third question in regards of our contract with the U.S. EV manufacturer. For sure, we are working -- we are heavily working on the ramp-up of that platform, and it is expected that this will then start with beginning of the next calendar year, which is then our fourth quarter. So as I mentioned, this gives us, for sure, a certain sense of perspective revenue-wise as well as contribution wise that this will support for year-end.

[Operator Instructions] Gentlemen, there are no further questions. Back over to you for any closing remarks.

Okay. Then that's it for today. Thank you very much for participating, for listening to us. We appreciate it. And yes, see you next time in February. Yes. Thank you very much, and goodbye. Good afternoon.

Bye.

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.