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

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the Q3 2024-'25 results of Novem Group, which will be presented by the CEO, Markus Wittmann; and CFO, Benjamin Retzer. [Operator Instructions] I would now like to turn the conference over to Markus Wittmann. Please go ahead.

Thank you, Valentina. So good afternoon, ladies and gentlemen, and welcome to the presentation of Novem Group's third quarter results. During the past quarter, Novem secured 2 new contracts. The first one is the third EV model of the Jaguar Panthera platform and the second one is the Audi Q8 e-tron. In quarter 3, we achieved a revenue of EUR 124 million which represents a decrease of nearly 11% compared to last year's Q3. In addition to the reduced call-offs, the quarter was further impacted by extended holidays during the Christmas season. The resulting fewer working days and lower revenue led to an adjusted EBIT of 8.1%. Looking ahead, we see ongoing discussions regarding model strategy and launch delays, which are reflected in reduced call-offs and general production interruptions, especially in Europe and China. Under these circumstances, we do not foresee a market recovery in the medium term. These new insights have been incorporated in the current running budget process for the next fiscal year and brought us to the conclusion to adjust our midterm guidance to 11% to 12% adjusted EBIT. Going ahead with the financial highlights. Revenue, as said, EUR 124 million in Q3. Adjusted EBIT, EUR 10 million compared to EUR 16.6 million last year's and ending up in a margin EBIT -- adjusted EBIT margin at 8.1%. Free cash flow at EUR 1.3 million and net leverage worsened to all these circumstances to 2.1x adjusted EBIT. Going ahead with the year-to-date financial highlights, the revenue year-to-date in Q3 ended up with EUR 403.5 million, which means roundabout 17% less than the last year's and adjusted EBIT is EUR 18.4 million lower at EUR 36.2 million. In margin, we ended up year-to-date -- stand year-to-date at 9.0% with a cash flow of EUR 1.9 million. Net leverage, as said, 2.1x adjusted EBIT. Yes, saying this, I'd like to hand over to our CFO, Benjamin to present the detailed financial figures. Benjamin, thank you.

Thank you very much, Markus. I would also like to take this opportunity to welcome you to today's Q3 results presentation. And together, we will go through all the details of the group results, starting with the revenue development. Total revenue, as already said and heard of EUR 124.0 million in quarter 3 decreased by minus EUR 14.7 million or minus 10.6% in comparison to last year. In terms of Series, revenue Series of EUR 108.0 million diminished by minus EUR 15.1 million or minus 12.2% versus prior year and contributed to -- or contributing 87.1% to total revenue. This drop in Series business was influenced by continuously subdued call-offs above all in Europe and Asia. And extended customer plant holidays over Christmas and into the new calendar year. Top line benefited from favorable FX effects, so revenue in Q3 would have been lower by minus EUR 0.6 million or minus 0.4% at constant FX rates. Tooling added EUR 16.0 million to total revenue and noted slightly above previous year by EUR 0.4 million or plus 2.3%, predominantly driven by a different project phasing. On a 12-month basis, total revenue recorded at EUR 553.2 million and decreased by minus 2.6% compared to last quarter. So to summarize, we are, again, anything but satisfied with this picture, the top line continued to suffer from a further deterioration in customer sentiment and the associated negative market dynamics especially in the premium segment and market underpinned with, yes, disruptive discussions and their structural impact on the model strategies, especially in Europe. And therefore, as mentioned, upholding a negative momentum. This development is also visible in the adjusted EBIT both in absolute terms and percentage-wise, which came out at EUR 10.0 million or 8.1% for quarter 3. On a year-to-date basis and in these persistently challenging times, we see a solid adjusted EBIT margin of 9.0% or EUR 36.2 million compared to quarter 2 in which an adjusted EBIT margin of 8.6% was reported. The margin dilution to 8.1% was predominantly influenced by Series business as volumes continue to further suffer. Furthermore, and consequently, the margin was negatively impacted by a poor cost coverage given the fact that we have not been able to reduce personnel costs as quickly as sales have again fallen in order to achieve a certain level of productivity and efficiency appropriated -- or appropriate to that level of low sales volume. In addition, bottom line was negatively affected by an unfavorable product mix as well as model changes. Nonetheless, and despite all these rigorous cost control and restructuring measures supported the bottom line. In addition, adjusted EBIT benefited from customer compensation payments and the release of accruals, both in the range of a mid-single-digit million number. As with turnover, last 12 months adjusted EBIT dropped to EUR 50.6 million and decreased by minus 11.5% compared to last quarter. Coming to the free cash flow. Novem generated a free cash flow of EUR 1.3 million and outperformed last year by plus EUR 5.2 million. Cash flow from operating activities of EUR 3.6 million was ahead of prior year by plus EUR 3.9 million. The main reasons for this development, where a smaller decrease in trade payables in the amount of EUR 13.6 million, reduced inventories, plus EUR 10.7 million both, for sure, volume driven but also deliberately managed and a lower decrease in provision in the amount of EUR 8.8 million conversely affected mainly by the loss of the results for the period under review and other noncash items in the amount of EUR 13.1 million. Cash flow from investing activities of minus EUR 2.3 million came in below previous year's figure of minus EUR 3.6 million, which is primarily due to lower capital expenditure that is also adjusted to the current market situation. Having said this, capital expenditure reached EUR 3.5 million in quarter 3 and therefore, minus EUR 1.2 million below previous year's level which resulted in an underlying CapEx ratio of 2.8% compared to last year's number of 3.3%. So nearly half of the capital expenditure in this third quarter was invested at Novem's largest plant in Querétaro, Mexico with an amount of EUR 1.8 million and the majority of these investments was linked to the industrialization process for a large U.S. EV platform and business. On a last 12 months basis, capital expenditure of EUR 16.5 million was slightly below last quarter with a figure of EUR 17.7 million. Based on last 12 months total revenue of EUR 553.2 million, the CapEx ratio recorded at 3.0%, which was slightly below previous quarter with 3.1%. As of December '24, total working capital stood minus 4.0% below prior year at EUR 143.2 million in comparison to EUR 149.2 million in prior year. This variance of EUR 6.0 million stem from different factors and developments. On the one hand side, lower inventories in the amount of EUR 12.1 million, trade receivables, EUR 5.6 million and contract assets, EUR 5.0 million and on the other side, higher tooling net, EUR 8.4 million and lower trade payables, EUR 8.3 million. The decrease in inventories, as heard a couple of seconds ago, was driven mainly by the volume-related decline in stock of raw materials and lower trade receivables were also volume driven due to the reduced top line. With regards to the higher tooling net amount, this can be understood as an indicator for future Series business or platforms to come, also, as heard in relation to the before-mentioned business with U.S. EV manufacturer. Lower trade payables were also volume-driven. Looking at the trade working capital, which means without both tooling net and contract assets, it developed favorable from EUR 58.1 million to EUR 48.7 million on a year-on-year basis. However, the major KPIs in terms of working capital, DSO of 29 days in comparison to 33 days in prior year and DIO of 44 days in comparison to 47 days in prior year showed an overall positive development year-on-year while DPO of 39 days worsened a bit. Having now a look at our capital structure. Gross financial debt of EUR 303.5 million was slightly below last year's figure by minus EUR 3.9 million. These liabilities, by definition, included in the gross financial debt stood at EUR 53.3 million compared to EUR 57.7 million in prior year and therefore, declined by minus EUR 4.4 million, driven by both factors, repayments on the one hand side as well as FX effects on the other side. The cash position came in at a solid number of EUR 130.4 million compared to EUR 125.1 million in prior year supported by EUR 36.3 million from a non-recourse factoring program in comparison to EUR 37.2 million in prior year. Therefore, the net financial debt stood at EUR 173.1 million and showed a noticeable improvement against prior year with an amount of EUR 182.3 million. However, and as already said, the net leverage ratio worsened to 2.1x compared to previous year which is primarily due to the negative development of the last 12 months adjusted EBITDA key figure and resulted in Novem being placed in a margin grid that is 25 basis points higher. Then now looking into our operating segments. It needs to be noted that the American or Americas region remained the backbone of the group accounting for more than half of the total revenue with stable revenues on prior year's level, while both Europe and Asia declined similar to last quarter. Reduced top line in Europe, minus EUR 9.8 million year-on-year was mainly attributable to revenue Series due to the ongoing weak customer sentiment and which could also not be offset by revenue tooling. Above all unfavorable development was driven by the EOP of the BMW 5-series, lower volumes on BMW 7-series as well as the model change on Volvo XC90. Lower top line in Asia, minus EUR 5.0 million year-on-year was attributable to both tooling and series with EOP of BMW X3 as well as weaker call-offs of BMW X5. As already mentioned before, stable development in Americas with only a minor change of 1 point -- of EUR 0.1 million year-on-year was positively influenced by higher revenue tooling, which was almost completely offset by Series business. So transforming the before mentioned to the adjusted EBIT by the regions, we see that the adjusted EBIT showed a sharp increase in Europe, while Americas dropped significantly and Asia was slightly below prior year. Turnaround in Europe from loss-making adjusted EBIT of minus EUR 3.9 million in prior year to EUR 1.7 million, primarily supported by customer compensation payments as well as the release of accruals. In addition, cost savings and improved input costs such as leased workers and freight costs also increased the operational results despite the continued negative development in the top line. Adjusted EBIT of EUR 8.5 million in Americas fell short of prior year due to lower release of accruals as well as an unfavorable product mix while input costs remained on a stable level. In Asia, adjusted EBIT of minus EUR 0.2 million below prior year, mainly driven by a reduced revenue in both series and tooling. So this brings us already to the end of today's presentation. And again, to summarize, the business climate remains very demanding and challenging. And we are already seeing some sort of volatility or movements due to Mr. Trump's agenda, which is impacting both the global economy and the capital market. So having [ said ] this and again, as mentioned at the beginning of the presentation, while the overall challenging situation was expected to continue in the short term, it's now also anticipated and substantiated by the current budget process and because of but surely not only due to that before mentioned factors, that the assumed recovery up to 14% or 15% will not materialize in the medium term. Therefore, and as already announced by Markus at the beginning of the call, we believe it's only reasonable to adjust the medium-term guidance for adjusted EBIT margin to 11% to 12%. So nonetheless, we are aiming for a positive momentum in the coming quarter, our last quarter before year-end closing and are increasingly focusing on the ramp-up of our business with the SUV manufacturer, which should provide a sense of perspective. So thank you for taking the time to participate in our call today, and we are now looking forward to addressing any questions you may have.

[Operator Instructions] There are no questions at this time from the phone. I hand back to Markus Wittmann and Benjamin Retzer for closing comments.

Thank you, Valentina. So thank you, everyone, also from my side for participating our Q3 results presentation. So as Benjamin said, so challenging times now and also ahead of us, but nevertheless, let's think positive. So again, thank you very much for participating, and see you soon. Thank you.

Thank you.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.