Novem Group S.A. ($NVM)

Ladies and gentlemen, welcome to the Full Year 2025-'26 Preliminary Results Conference Call. I am Valentina, the Chorus Call operator. [Operator Instructions] At this time, it's my pleasure to hand over to Markus Wittmann. Please go ahead.

Thank you very much, Valentina. Yes, ladies and gentlemen, thank you for joining us today to discuss Novem's preliminary results for the financial year '25-'26. Let me start with a clear statement. This financial year has been shaped by a persistently challenging market environment. Continued soft demand, geopolitical tensions and rising protectionism has significantly impacted our industry and our performance for sure. Novem generated full year revenue of EUR 510.9 million, representing a decline of 5.6 percentage year-over-year. However, I would like to highlight a stabilizing development in the final quarter. Q4 revenue reached EUR 138.6 million, slightly above prior year levels with a growth of 0.4 percentage. At the same time, adjusted EBIT amounted to EUR 31.8 million for the full year. Profitability was clearly affected by lower volumes and weak cost absorption, particularly on our Series business. Nevertheless, thanks to action on cost control, we achieved a full year margin of 6.2 percentage, maintaining profitability in a difficult environment. Importantly, Q4 was the strongest quarter of the year with an adjusted EBIT margin of 7.0 percentage, in line with our expectations. We maintained strong financial discipline throughout the year. Our focus on working capital and cost management resulted in a solid free cash flow generation, culminating in a year-end free cash flow of EUR 48.1 million. In addition, by the end of April, we successfully extended our term loan to reduce debt levels, underlining our commitment to deleveraging and strengthening our financial position. The macroeconomic environment remained challenging throughout the year. We continued to face headwinds from weak customer call-offs as a -- to rising protectionism and increasing tariffs, combined with elevated uncertainty across global markets. In response, we focused relentlessly on what we can control, strict cost management, operational efficiency and disciplined capital allocation. These measures were essential to stabilizing our performance. Despite the difficult conditions, we continue to win new business. We achieved a solid order intake of more than EUR 60 million, reflecting ongoing customer trust in our technology and execution capabilities. Key highlights include new business awards in China with Stelato and Voyah, additional wins with established OEMs such as General Motors and Porsche. This success clearly demonstrates that Novem remains a preferred partner in the premium interior segment. Beyond automotive, we made further progress in diversifying our business. Our participation in the Aircraft Interiors Expo was met with a very positive feedback, confirming the relevance of our competencies in mobility segments. This is an important step in broadening our strategic footprint. In summary, the environment remains challenging and volatile, but our actions are delivering results. We have stabilized our profitability, generated strong cash flow, secured new business and strengthened our financial structure. Looking ahead, we will continue to focus on execution efficiency and strategic growth opportunity. Saying that, I would go ahead with the financial highlights. Starting with the quarter 4. As said, we ended up with EUR 138.6 million revenue, slightly increased compared to last year. Adjusted EBIT ended up with EUR 9.6 million with a margin of 7.0% compared to last year's 9.2%, a decline. Free cash flow with EUR 9.7 million, ended in a net leverage from 1.8x same as last year's Q4. For the entire year, our revenue ended up with EUR 510.9 million, adjusted EBIT EUR 31.8 million and as said, margin 6.2 percentage. Free cash flow, strong free cash flow with EUR 48.1 million and net leverage also 1.8x EBITDA, same as last year leverage. Yes. Saying that, I'd like to hand over to our CFO to give you more detailed financial insights. Benjamin?

Thank you very much, Markus. So also from my side, good afternoon, good morning, and thank you for joining our earnings call for the fourth quarter and at the same time, for our preliminary results of our full financial year '25-'26. We walk you through our financial and operational performance, providing insights into the regional developments and share also the outlook and the strategic priorities moving forward. So let me start with the quarter 4 review with the revenue performance. In quarter 4, '25-'26, total revenue amounted to EUR 138.6 million, representing a slight increase of plus 0.4% year-on-year. At first glance, this marks a stabilization compared to the previous quarters. However, as in earlier periods, already said, the reported revenue was materially influenced by foreign exchange effects. At constant FX rates, revenue in quarter 4 would have been EUR 6.3 million higher, corresponding to a plus 4.5% increase, highlighting the continued FX headwinds impacting our reported top line. Looking at the composition of revenue. Series revenue declined to EUR 112.1 million, down EUR 6.4 million or minus 5.4% versus prior year and contributed 8.9% of total revenue. The decline in the Series business was predominantly attributable to ongoing weak customer call-offs in Europe and the Americas, where several OEM programs continued to operate below normalized production levels. This development also needs to be seen in the context of the broader market. So the latest publicly available LVP data indicates a year-on-year decline of minus 3.4% for the period under review, and this underlining that the industry environment weakened meaningfully towards the end of the fiscal year and directly impacted Series volumes. In contrast, Tooling revenue showed a very strong performance. At EUR 26.4 million, tooling revenue surpassed the prior year by plus 36.3%, driven by several project closures realized during the quarter. As in previous periods, Tooling remains project and timing driven, but its strong quarter 4 contribution helped offsetting part of the Series decline. The last but not least, looking at the full year picture, total revenue for the financial year amounted to EUR 510.9 million, which is EUR 30.5 million below the prior year. And as already mentioned, this reflects the impact of the prolonged customer call-off softness in the Series business as well as the ongoing FX headwinds. So overall, quarter 4 revenue shows a clear mix effect, continued pressure on Series volumes aligned with the declining LVP market, a strong Tooling execution towards Year-end and year closing and a reported top line still weighed down by FX despite solid underlying constant currency performance. This sets the context for the profitability and the cash flow developments. We will discuss on the next slide. Now turning to the profitability of the fourth quarter. Adjusted EBIT amounted to EUR 9.6 million, which is EUR 3.1 million below the prior year level. These results resulted in a profit margin of 7.0% for the quarter. While margins remained solid from an absolute perspective, the year-on-year decline reflects the continued pressure on the operating environment towards the end of our financial year. The operating result was primarily impaired by continued weak Series revenue, particularly in Europe and Americas, where customer call-offs remained below that normalized levels. Partially offsetting these headwinds, the bottom line benefited from a strong Tooling business, especially in Europe, which delivered notably higher contribution compared to the prior year. And therefore, these project closures during the quarter supported the margins and helped mitigate our weaker Series development. In addition, our ongoing cost control initiatives continue to support profitability. Measures such as the short-time work in Germany played a critical role in aligning our cost base with the reduced volumes and limiting the margin impact. Importantly, the voluntary severance program in Germany has now been largely completed. With the majority of restructuring actions implemented, we expect our cost structure to improve structurally going forward and providing operating leverage once volumes stabilize or even recover. Looking at the full year picture, adjusted EBIT amounted to EUR 31.8 million, translated into the profit margin of 6.2%. So this reflects a year characterized by challenging market volumes, FX headwinds and customer-specific softness, but also while also demonstrating the stabilizing effects of cost discipline, restructuring measures and [indiscernible] project execution. Overall, quarter 4 confirms that while earnings remain exposed to continued Series volume pressure, the structural actions taken during the year are starting to strengthen the earnings base and positioning us more robustly for the next financial year. Let me now turn to our cash flow performance in the fourth quarter. The free cash flow amounted to EUR 9.7 million, which was EUR 17 million below the prior year level. And this year-on-year decline is primarily explained by the operating cash flow movements and reflects primarily working capital timing effects. So the cash flow from operating activities reached EUR 13.4 million, lagging behind last year by EUR 16.8 million. Main contributors to this development were the trade receivables, they increased by EUR 18.8 million, mainly driven by revenue timing and year-end cutoff effects. Deferred taxes had also a negative impact overall of EUR 10.8 million, reflecting timing difference between accounting profit and taxable income and the lower profit for the period, EUR 8.4 million also weighed on the operating cash flow. These negative effects were partly offset by decreased other receivables in the amount of EUR 8.9 million, higher provisions of EUR 8.2 million and reduced inventories in the amount of EUR 7.4 million, reflecting active inventory normalization measures towards year-end. On the investing side, the cash outflow from these activities amounted to minus EUR 3.7 million, remaining largely in line with the prior year level of minus EUR 3.5 million. This underscores, again, the disciplined and stable investment approach despite that volatile market environment. While quarter 4 free cash flow came in below the prior year quarter, it is important to look at the full year perspective. Despite these challenging market conditions, the full year free cash flow reached EUR 48.1 million, and this is exceeding the previous year by roughly almost EUR 20 million or plus 68.9%. This is a very strong annual performance, and this highlights, again, the structural ability to generate cash and a strong cash conversion, as mentioned and already heard, supported by our disciplined working capital management, controlled capital expenditures and the benefits of the cost and restructuring measures. In summary, also quarter 4 cash flow reflects short-term timing and earnings effects, the full year cash generation demonstrates the financial resilience of Novem and its business model. Now let us turn to the capital expenditure. This amounted to EUR 4.6 million, remaining steady state or at a steady level compared to prior year. This reflects, as already heard, that disciplined approach to the overall investments even in an environment with softer volumes and market uncertainty. Based on total quarterly revenue of that EUR 138.6 million, the CapEx ratio stood at 3.3% and exactly in line with the last year's level of 3.3%. Looking at the full financial year, the vast majority of investments were carried out in Europe and in the Americas region or region amounting to EUR 8 million. and EUR 4.2 million, respectively. In Europe, more than half of the CapEx was allocated to our plant in Pilsen, totaling EUR 4.1 million and primarily related to new product launches and the preparation of production capabilities to support these upcoming programs. In Americas, the CapEx was focused mainly on Querétaro and our site in Atlanta. This project supports both new program ramp-ups and also targeted enhancements to our production infrastructure and these aligned with customer demand and growth opportunities. On a full year basis, the total CapEx amounted to EUR 12.4 million and based on an LTM revenue of EUR 510.9 million, the CapEx ratio for the last 12 months was 2.4%, also demonstrating a well-balanced investment profile over the year. Now let's turn on to the working capital, working capital at year-end. So as of 31st March '26, total working capital amounted to EUR 132.1 million, which represents an increase of 6.7% year-on-year compared to the EUR 123.8 million last year. This development reflects a combination of different effects on the one hand side, volume effects, customer payment behavior and also project-related balance sheet dynamics towards the end of the year. The year-on-year deviation of minus EUR 8.3 million was mainly driven by lower trade payables in the amount of minus EUR 12.1 million and higher trade receivables in the amount of minus EUR 6.9 million. And these effects were partly offset by lower tooling net position in the amount of plus EUR 5.4 million, lower inventory levels in the amount of EUR 4.9 million and a slight reduction in contract assets. The decline in trade payables largely related to reduced business volume, particularly towards year-end with lower purchasing activities and outstanding supplier balances. Conversely, the reduction in tooling net reflects a decrease in unfinished tools and tooling receivables as well as lower tooling-related trade payables and advanced payments following the project progress and closures I already highlighted. As a percentage of the last 12 months revenues, the total working capital increased to 25.9% compared to 22.9% in the prior year. So this effect or this ratio reflects the combined effect of lower revenue levels and temporary balance sheet timing effects. Focusing on the trade working capital, so that means excluding the tooling net position and contract assets, the development was unfavorable, increasing from EUR 34.7 million last year to EUR 48.9 million. And this movement mainly mirrors the increase in receivables and the normalization of payables. Looking at our key working capital KPIs. So the DSO worsened a bit to 37 days from 35 days last year. DPO developed to 55 days from 47 days, so a rather normalized level now and DIO remained stable at 39 days, unchanged year-on-year. So in summary, year-end working capital increased due to volume-driven effects and timing shifts, particularly on receivables and payables. At the same time, the Tooling net and the inventories developed positively. So let me now conclude the financial review with an update on the capital structure. As of 31st March '26, gross financial debt amounted to EUR 287.3 million, which is EUR 11.1 million below last year's level. This was achieved despite a challenging market environment and again, reflects our balance sheet management and a strong cash generation over the course of the financial year. Included in gross financial debt are the lease liabilities of EUR 36.5 million, also declined meaningfully compared to EUR 48.1 million in the prior year. This decrease reflects the ongoing footprint optimization and the scheduled runoff of lease obligations. On the liquidity side, our principal sources of funds strengthened further. We closed the year with a cash balance of EUR 175.2 million, up from EUR 150.1 million last year and is underlining the solid cash inflows generated throughout the year. In addition, we continue to make prudent use of our nonrecourse factoring program at EUR 40 million. This broadly in line with the EUR 41.2 million in the prior year, also supporting working capital flexibility. As a result, the net financial debt declined significantly to EUR 112.1 million compared to EUR 148.2 million last year. Yes, this improvement comes through clearly despite the softer revenue backdrop and confirms the effectiveness of our cash flow measures. The net leverage ratio stood at 1.8x adjusted EBITDA, unchanged versus the prior year. And from our perspective, maintaining the leverage at this level in a year marked by softer market volumes highlights, again, the resilience of our financial structure and provide us with a solid platform for the future market volatility while continuing to select invest in growth initiatives. So having done this and also given this momentum, as already heard and announced, the Novem Group secured by end of April the extension of its existing syndicated loan facilities with a total volume of EUR 210 million, thereof EUR 160 million term loan facility and EUR 50 million revolving credit facility at market standard margins and a term until end of June 2028. So by amending the current term facility that originally matured in July '26, Novem will reduce the volume or have already reduced the volume of term debt by EUR 90 million. And this extension of these existing facilities provides us with a robust financing foundation going forward. So let me now walk you through our revenue development by the operating segments. So on a segmental basis, the overall revenue increased slightly, as already heard by EUR 0.6 million year-on-year with the improvement primarily driven by Europe, while both the Americas and Asia reported declines. This again highlights the different regional dynamics we experienced during the quarter. So starting with Europe. The revenue increased significantly by EUR 10.5 million year-on-year. This favorable development was supported by a strong Tooling performance driven by project closures for example, for the Mercedes-Benz S-Class and the V-Class as well as Audi Q4. So these project completions provided a solid boost to the European revenue and more than offset pressure on Series volumes in the region. In contrast, the revenue in the Americas declined by EUR 8.8 million. The decrease was mainly caused by weaker Series revenue, partly due to weather-related shift adjustments at 2 customer plants, which temporarily impacted the production schedules. And in addition, a differently phased Tooling business contributed also to the year-on-year decline. Turning to Asia. Revenue decreased by EUR 1.1 million. So this decline was driven primarily by tooling business, while Series sales in Asia remained broadly in line with the prior year's level and is reflecting a stable underlying Series demand despite overall subdued market conditions in this region. So looking at the broader picture, the last 12 months revenue allocation remains well balanced across the regions, 49.3% of last 12 months revenue was generated in the Americas region, 41.7% in Europe and 9.0% in Asia. Again, this regional mix underlines our diversified geographic footprint, which continues to help balance cycles, customer-specific effects and project phasing across the markets. And now last but not least, turning to the profitability. So in the fourth quarter, the adjusted EBIT development differed significantly by the region. Americas saw a considerable decline, Europe delivered a moderate improvement and Asia remains broadly stable. Again, starting with Europe, we achieved a clear turnaround here. Adjusted EBIT improved from a loss of minus EUR 3.9 million in the prior year to a positive EUR 1.1 million in quarter 4. As mentioned and already stated, this improvement was supported by project closures, which provided an earnings contribution and helped offsetting ongoing pressures from the Series volume. However, it is important to note that an unfavorable product mix continued to weigh on the operating result here and limiting the upside development despite improved execution. In the Americas, adjusted EBIT declined significantly to EUR 9.3 million. This decrease was driven by lower revenue across both Tooling and Series business, reflecting the softer demand as well as project phasing effects. And these negative impacts were partially mitigated by income from others, which provided some offset but could not fully compensate for the revenue shortfall. Turning to Asia. Adjusted EBIT amounted to minus EUR 0.7 million compared to minus EUR 0.1 million in the prior year and therefore, so slightly short of last year's level. Also here, the decline was attributable to a weaker Tooling contribution. At the same time, Series business showed a slight increase and input costs improved, which helped stabilize profitability and limit further downside. Before opening the lines for the questions and the question sessions, let me also conclude on today's presentation for our full year preliminary results. So as already highlighted and marked -- by Markus, that the past financial year was influenced by an elevated uncertainty across the global markets. The automotive industry in '25/'26 was characterized by flattening demand in major markets, pressure on Series volumes and heightened volatility in the supply chain. Industry forecasts for '26 highlighting also a rather flat development in the vehicle sales, the ongoing tariff-related uncertainty intensifying pressures coming out from the Chinese OEMs and a structurally more complex powertrain mix, particularly between the EVs, hybrids and the ICE platforms. Also, geopolitical developments have added a new and additional layer of risks towards our year-end by end of March, so the escalation of the Middle East conflict, including some military activities involving Iran and heightened instability around the Strait of Hormuz also significantly disrupted the global shipping routes and energy markets. [indiscernible] So against this backdrop, Novem delivered a resilient performance. Also as mentioned, while the Series volumes declined in line with a weakening LVP market, the Tooling business provided an important counterbalance, particularly in Europe, yes, and that helped also for the turnaround. The key strength throughout the last financial year was, for sure, the cash generation with a full year free cash flow of EUR 48.1 million and a nearly 70% improvement year-on-year. So looking ahead, the visibility remains for sure limited, continued uncertainty around energy prices and logistics linked to the Middle East tensions; trade and tariff regimes, particularly in North America and Europe; and OEM production planning amid uneven electrification momentum is likely to keep demand volatile in the next financial year. So that's more or less, in a nutshell, a summary of our last financial year and also an outlook into the nearer future. So thank you for your trust and support. And now we open the line for your questions.

[Operator Instructions] The first question comes from Klaus Ringel from ODDO BHF.

I actually would have 2 of them. One is going back to your business outlook for this year and maybe also maybe a bit of your take on the medium-term volumes. I mean you said demand is likely to remain volatile. So is it fair to assume a comparable pattern quarter-over-quarter in '26/'27 like we have seen in the last financial year? Or is there anything you can share in terms of plans by your customers, how they want to produce? And the second one would be on the diversification of your business model. You mentioned you would be willing to go further into aircraft interiors. When would you expect, let's say, larger volumes from here or maybe some relief and thus the diversification a bit away from automotive?

Klaus, It's Markus. Thank you for your questions. So coming back to the question number one, so for the call-offs of the customers. So as you may know, in automotive industry, we see call-offs -- reliable call-offs ahead, I would say, a quarter, 3 months. So normally, we get 6 months ahead, but reliable, we see 3 months. And what we see for now Q1 is the new fiscal year and also Q4 -- Q2, sorry, so we can see it is flat and according planning. So we do not see this up and downs as we saw it in the past. I would say we are going ahead as the last quarters. So we could say we reached border line and sometimes we see a slightly increasing. This also depends a little bit to the new ramp-ups, which we have ahead of us, starting now with the new S-Class and in the summertime with the new 7 Series model. Therefore, supply chain filling is for sure, demanding more vehicles in the beginning. So to summarize it, first 2 quarters, I would say we are pretty confident to fulfill our expectations. Next point, diversification in aircraft. As I mentioned, yes, we are the second time on the expo in Hamburg last year, it was the first time. This year, we got really very good feedback from all our customers who visited us. And at the first time, we got already some betas from them. And we expect to give the first quote during the summertime to them. But since industry is not too fast as automotive, so expecting the first turnover, I would say it is end of '27/'28, so around about. But we're now starting this project work, and that's a good sign for us into the future.

The next question comes from Alexandre Raverdy from Kepler Cheuvreux.

I have 2 quick questions, please. The first one on the -- I mean on the outlook. So you made some comments about the call-offs. Could you please elaborate a bit more on your margin expectation for this fiscal year as I think overall volumes are highly uncertain. I guess the positive tooling effect could reverse, and we are seeing further pressure from input costs and also energy raw materials. So I just wanted to understand the key puts and takes and whether we could expect margin to keep on progressing this fiscal year? And the second question is on the new orders that you managed to secure with the Chinese OEMs, GM and Porsche in terms of content that you addressed, the potential revenues and the expected start of production.

Okay. Thank you, Alexandre, for your question. So I try to answer your first question in terms of outlook and then in terms of bottom line. So for sure, as you may know, we do not have a clear forecast out at the market, and we still stick to our midterm guidance. And bringing all this in the broader picture, starting with the top line and a rather flat development in terms of the overall market with a rather flat and only minor increase in that market, for sure, you can expect that the margin or a rather high margin increase is also not visible and also not fair to state here. But nevertheless, as we mentioned during the call, all the measurements, all the restructuring activities we did not only in the last quarter, but also during the last financial year and the year before, they may and will impact the profitability and the profitability levels and giving this to a slight increase step by step. So these effects will, for sure, impact the profitability in a positive way. For sure, on the other hand side, we have now, again, a new layer of challenges and headwinds in terms of raw materials, in terms of logistics, in terms of energy prices due to the fact of that, as I mentioned, geopolitical tensions we face a couple of weeks and already months now. So far, I think we managed it quite well, not seeing a huge impact. But nevertheless, it's for sure related to a ending of that conflict in the nearer terms in future. If this was not the case and if this will not be the case, then for sure, that will impact also the cost structure again. And then we need to also reshift and rethink in a kind of scenario about the profitability. But so far and also stated the 3 months revenue outlook, what we can rely on is that we can go and look forward quite close to our expectation to our target, which means a slightly increase in terms of the profitability step-by-step into levels Novem was in prior times and will be back again, but this will take time and in rather small steps going forward.

Yes, coming to the new business, General Motors and Porsche, Alexandre. So these cars are fully equipped. It's -- we do not see any decontenting here and especially at General Motors. This is a G1 truck platform. So it's an Escalade. It's a huge car and it is really fully equipped as it was in the past also, and it was already in Novem's hand, and it is around about EUR 20 million business. Porsche, for sure, it's smaller because of the quantities of the vehicles, but both cars are running very well. And yes, we are confident with that.

The next question comes from Zachary Olson from Drum Hill Capital.

First off, just wanted to congratulate you on how you've navigated what's been undoubtedly a challenging situation for Novem, for suppliers to the auto industry in general. Given what's going on, good state of things, obviously, not out of the woods, but I'm just sort of wondering, given the progress we've seen, how are you thinking about capital allocation on a very high level going forward? I mean obviously, the results from this past year, a lot of free cash flow generation. How are you thinking about that? I mean is it continuing to invest in sort of that diversification away from autos? Is it sort of thinking about continuing to build financial stability because there are no shortage of challenges ahead? Might we see a point where return of capital even on a small basis might be on the table for shareholders? Just curious on your thoughts there.

Okay. Thank you, Zachary, for that question. So in terms of the capital allocation, so we need to differentiate this and also given the fact and as already noted and explained that we made a strong contribution in terms of deleveraging, right, with the extension of our financing until 2028. So we paid back EUR 90 million from our cash base. So that's one big contribution. Second topic is that for sure, with a still solid cash position, we need to fulfill for sure all our programs. And if you remember, we had huge order intake, not only within this financial year, above EUR 60 million, but also the years before, up to EUR 100 million. And all these projects are right now in the middle of the project phase. And also in terms of the Tooling business and project-related business, for sure, we need to invest here, not only in machinery, but also in tooling. And this is also a big contribution. So this is already a contribution into the future, into the future growth. Also we are still regularly in bids and in quotation. And also we are in promising talks here with big projects ahead of us. And also here, there will be a huge allocation of our capital into that huge programs going forward. Besides that, for sure, as mentioned by Markus, we are looking into diversification where it makes sense for us in close mobility segments. So this is not a question of capital allocation because based on our capabilities, based on our technologies and on our know-how, especially in the aviation or aircraft business, I think going up and ramping up that business is not as huge capital intense as it might be, and we can do so the first steps, as already explained by Markus. So for sure, we are looking into diversification, aviation, but especially in the core business of Novem in the automotive, a lot of huge projects already started, but also ahead of us, which will be capital intense. And for sure, based on volatile [indiscernible] times like these, for sure, you need to have a kind of safeguard and security alongside with the business that gives a strong position. Therefore, that's more or less our strategy in terms of capital, capital usage, capital allocation.

[Operator Instructions] Ladies and gentlemen, there are no more questions from the phone. I would now like to turn the conference back over to Markus Wittmann for any closing remarks.

Yes. Thank you. So thank you to all of you for participating and listening to our presentation. So as heard, Novem operates in a demanding environment, but we are taking the right measures to navigate through it. We remain confident in our long-term positioning and in our ability to create sustainable value for our stakeholders. So thank you very much for the attention and for your support and trust in us. So thank you, and take care.

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.