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

Ladies and gentlemen, welcome to the Q1 2026-'27 Results Conference Call. I'm Carmen, the Chorus Call operator. [Operator Instructions] and the conference is being recorded. [Operator Instructions] The conference may not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Markus Wittmann. Please go ahead, Mr. Wittmann.

Yes. Thank you, Carmen, and thank you, ladies and gentlemen, for joining us today for our first quarter update. I'm pleased to report that Novem delivered a solid performance in the first quarter despite ongoing uncertainties across the global automotive industry. During the quarter, we generated a total revenue of EUR 132.6 million, representing an increase of 2.8% compared to the same period last year. This growth was driven by a favorable development in our business, while our serial production business remained logically stable. The market environment continues to be shaped by persistent geopolitical challenges, changing customer demand and regional differences across the automotive sector. Against this backdrop, our performance demonstrates the resilience of our business model. Our profitability improved further during the quarter. We achieved an adjusted EBIT of EUR 8.8 million, resulting in an adjusted EBIT margin of 6.6%. This improvement was supported by higher revenues and equally important by our continued focus on cost discipline across the entire organization. Over the past quarters, we have focused on increasing efficiency and strengthening operational excellence. And these efforts continue to contribute positively to our results. Beyond the financial performance, we also made important strategic progress in expanding and diversifying our customer portfolio. A significant milestone was the successful nomination for a platform with Scout Motors, further broadening our customer base and strengthening our position in the growing market for premium and innovative auto mobility solutions. In addition, we secured further business with key customers, including Mercedes-Benz, General Motors and BMW. These contracts further strengthen our business outlook and underpin a robust order book for the coming years, while recognizing that the project volumes are based on customer planning assumptions and may evolve with the market conditions. Innovation remains a central pillar of our strategy. During the reporting period, we continue to expand our expertise in high-quality surface finishing technologies. A notable step in this journey was our investment in DLyte technology, which enhances our capabilities in precision finishing and supports our ambition to remain the leader premium interior trim partner for the automotive industry. As we look ahead, market conditions remain dynamic and challenging. However, the combination of a strong order book, expanding customer relationship, disciplined operational management and continuous innovation gives us reason to be cautiously optimistic. I would like to go ahead with the financial highlights for the Q1. As mentioned, our revenue increased by 2.8% and resulting in EUR 132.6 million. Adjusted EBIT was also increasing -- largely increasing by 14.1% and ended up with EUR 8.8 million. The margin came up from 6.0% last year's quarter 1 to this year's 6.6%, although our free cash flow is well above last year's with EUR 4.8 million. And our net leverage was on a lower level with 8.8 -- sorry, 1.8 multiples than last year's 2.0. So that's an overview from my side. And saying that, I would like to hand over to Benjamin to give you more financial details.

Thank you very much, Markus. So also from my side, good afternoon, good morning, everyone, and thanks for joining our earnings call for the first quarter of the financial year '26-'27. So as already heard, I will walk you through our financial and operational performance. And let me start with the quarter 1 review with our revenue performance. So as already heard, the group revenue for the quarter reached EUR 132.6 million, representing 2.8% year-over-year growth compared with the EUR 128.9 million in the prior year period. So this performance was achieved despite the well-known challenging market environment with publicly available data indicating a 0.2% year-over-year decline in the global LVP market during the quarter. So Novem outperformed the market, highlighting the strength of our customer relationships, product portfolio and execution capabilities. Looking at foreign exchange impact, the revenue growth would have been slightly stronger on a constant currency basis. So adjusting for exchange rate movements, revenue would have been approximately EUR 0.3 million higher, equivalent to an additional 0.2 percentage point of growth. Breaking down the revenue by business segment, our Series business generated EUR 116.4 million, broadly in line with the prior year level of EUR 116.8 million. So the Series segment continued to demonstrate a kind of stability across our regions and accounted for approximately 88% of the total group revenue during the quarter. As expected, the key growth driver was our tooling business, which delivered revenue of EUR 16.2 million, up from EUR 12.2 million in the prior year quarter. This represents a strong increase of 33.3% year-over-year, primarily driven by the successful completion and the milestone recognition of several customer programs during this period. Turning to the last 12 months. The group revenue reached EUR 514.6 million, an increase of EUR 3.6 million, as already heard, or 0.7% compared with the previous quarter's rolling 12 months figure. In summary, the first quarter delivered a, so to say, solid start to the financial year. We achieved revenue growth above market levels, maintained stability in our core Series business and benefited from a strong tooling execution. With that, I will now move on to the profitability and to our performance here. In the first quarter of the financial year 2026-'27, adjusted EBIT increased to EUR 8.8 million compared with EUR 7.7 million in the prior year quarter. This represents an improvement of EUR 1.1 million or 14.1% year-over-year and resulted in an adjusted EBIT margin of 6.6%, up from 6.0% a year ago. So this improvement reflects the successful execution of our operational and cost management initiatives despite the aforementioned challenges in our market. Starting with the underlying business performance. Our Series business remains stable, as already heard and provided a solid earnings foundation. Also, market demand remains subdued. Particularly in certain vehicle segments, our operational discipline and customer mix helped maintain profitability. In addition, the tooling business delivered a strong contribution to earnings, particularly in Europe and the Americas. Beyond these business mix effects, the profitability also benefited from lower other operating expenses compared with the prior year. So our teams across the organization continue to focus on strict cost control efficiency measures, allowing us to offset the inflationary pressures and volume-related headwinds. As previously communicated, we have maintained a strong emphasis on cost efficiency, and these include measures such as the already known short-time work agreement in Germany, which helped align our cost base with the current market conditions while preserving a kind of flexibility. Looking at the last 12 months, adjusted EBIT reached EUR 32.9 million, an increase of EUR 1.1 million compared with the previous quarter's rolling 12 months figure. Again, here, in summary, overall, we view the start to the financial year positively, delivering double-digit EBIT growth in a market that remains broadly flat, highlights our resilience in our business model. Let me now turn to cash flow generation, which was another positive highlight of the quarter. For the first quarter, the free cash flow amounted to EUR 4.8 million compared with EUR 1.3 million in the prior year period. So this represents an improvement of EUR 3.5 million, meaning a free cash flow increase by more than 100% year-over-year. The improvement was primarily driven by stronger operating cash flow performance. So the cash flow from operating activities totaled EUR 5.9 million, which was EUR 3.6 million higher than the prior year. Looking at the key movements within the working capital and operating cash flow, we benefited from an increase in trade payables movement of EUR 22.5 million, lower trade receivables movement of EUR 6.1 million and an increase in provisions of EUR 5.1 million. In addition to that, other items contributed positively by approximately EUR 2.2 million. These favorable developments were partly offset by several expected headwinds. These included lower profit for the period of EUR 14 million, a reduction in other liabilities of EUR 10.2 million as well as higher tax payment movements of EUR 1.8 million during the quarter. Turning to investing activities. Cash outflow remained well controlled. The investing cash flow was EUR 1 million, broadly in line with the prior year level of EUR 0.9 million. And this again reflects our disciplined approach to capital allocation while continuing to support customer programs as well as operational requirements. Looking here also at the broader picture, our last 12 months free cash flow reached EUR 51.7 million, increasing by EUR 3.5 million or 7.3% compared with the previous quarter's rolling 12 months figure. Let me now discuss our capital expenditure and investment activities during the quarter. Capital expenditure amounted to EUR 1.7 million compared to EUR 1.8 million in the prior year quarter. And so this represents a modest decrease of EUR 0.1 million or 4.6% year-over-year. From a regional perspective, the largest investments during the quarter were made in our facilities and sites, Pilsen and Queretaro, accounting for approximately EUR 0.6 million and EUR 0.5 million, respectively. These investments were primarily directed towards equipment and infrastructure required to support the upcoming customer programs. Importantly, the majority of our capital spending remains growth-orientated rather than maintenance-related. Our investments are closely linked to the ramp-up of new projects and product launches, ensuring that we have the necessary capacity and capabilities in place to meet the demand. So overall, our investment spending remains well controlled and fully aligned with the business requirements, and we continue to balance support for future growth programs with our commitment to a strong cash generation and balance sheet strength. With that, I will now move on to the working capital development and the balance sheet efficiency. So as of 30 June 2026, total working capital amounted to EUR 139.6 million compared with EUR 136.9 million at the end of the prior year period. So this represents an increase of EUR 2.7 million or 2.0% year-over-year. Looking at the individual components, the year-on-year increase was primarily driven by lower trade payables of EUR 4.7 million, higher trade receivables of EUR 3 million and higher contract assets of EUR 1.9 million. And these factors were partially offset by a favorable development in the Tooling net position of EUR 5.5 million as well as lower inventory levels of EUR 1.4 million. Let me elaborate briefly on Tooling net. The improvement was largely attributable to lower balances in unfinished tools, tooling receivables, tooling-related trade payables and customer advance payments. These effects were partially offset by an increase in tooling provisions. So overall, the development reflects the continued progress in the execution and completion of tooling programs, which we already saw also in the tooling revenue at the end of the day. Focusing on trade working capital, the figure increased from EUR 43.9 million a year ago to EUR 50.2 million at the end of this first quarter, and this development was mainly driven by receivables and payables movement during the respective period. Looking at our operational efficiency metrics, the DSO increased to 38 days from 34 days in the prior year, while DPO decreased to 44 days from 51 days. So both developments had an unfavorable effect on trade working capital. And on the other hand, DIO improved to 39 days from 40 days, reflecting the continued inventory discipline and inventory management across our operations. So overall here, while working capital increased modestly year-over-year, we continue to actively manage all key balance sheet components. So inventory performance remains strong. Tooling balances developed favorable, and we remain truly focused on receivables collection and optimizing the payment terms. Let me now conclude the financial review with an update on our capital structure. So as of June 2026, our balance sheet remains solid, supported by a strong cash generation and the successful refinancing activities completed within April. Starting with debt. Gross financial debt stood at EUR 192.6 million, a significant reduction of EUR 101.3 million compared to EUR 293.9 million at the same reporting date last year. So this reduction reflects the extension of our former EUR 250 million term loan and the partial repayment of EUR 90 million, which has materially strengthened the capital structure. Included within gross financial debt are lease liabilities in the amount of EUR 35.5 million, down from EUR 43.5 million in the prior year and reflecting the ongoing amortization of lease obligations. Turning to liquidity. We ended the quarter with cash and cash equivalents of EUR 82.2 million compared with EUR 143.2 million a year ago. In addition, we continue to utilize nonrecourse factoring of EUR 36.2 million, broadly stable compared with EUR 37.9 million in the prior year. So together, these sources provide significant liquidity and financial flexibility to support the business. As a result, the net financial debt declined to EUR 110.4 million, down from EUR 150.7 million in the prior year. So the reduction of more than EUR 40 million year-over-year demonstrates the strength of our cash generation capabilities and the impact of the extended financing transaction. Looking at leverage, our last 12 months net leverage ratio improved to 1.8x adjusted EBITDA compared with 2 point times or 2.0x a year ago. Importantly, leverage has remained stable at 1.8x over the last 3 quarters, highlighting the consistency of our earnings performance and balance sheet management. So overall, we are pleased with our financial position at the end of the quarter. We have significantly reduced gross debt, lowered net debt or net indebtedness, improved leverage metrics and maintained liquidity. So combined with improving profitability and healthy cash flow generation, we believe Novem remains well positioned to navigate the current market environment. So let me now provide some additional color on our regional revenue performance. From a geographic perspective, growth was driven primarily by Europe and the Americas, while Asia recorded a modest decline. Starting with Europe, revenue increased from EUR 55.2 million to EUR 60 million, representing growth of EUR 4.9 million year-over-year or approximately 9%. So this strong performance was mainly supported by higher tooling revenues resulting from several project closures and milestone achievements. Moving to Americas. The revenue remained broadly stable at EUR 61.6 million compared with EUR 61.4 million in the prior year. So while the region faced the same market headwinds seen across the industry, customer demand and production schedules remained relatively resilient in allowing us to maintain a solid revenue base there. In Asia, revenue declined from EUR 12.3 million to EUR 10.9 million, a decrease of EUR 1.4 million year-over-year. This development was primarily attributable to lower tooling business activities compared with the strong prior year quarter. Encouragingly, this was partially offset by growth in our Series business, demonstrating continued demand from existing customer programs in that region. Looking at the overall regional mix for the quarter, the Americas represented approximately 46% of group revenue, Europe accounted for around 45% and Asia contributed roughly 8%. So last but not least, let me now turn to the profitability by the operating segment. As discussed earlier, group adjusted EBIT increased to EUR 8.8 million compared with EUR 7.7 million. The primary driver of this improvement was a significant earnings recovery in Europe, which more than offset lower contributions from the Americas and Asia. [Indiscernible] and starting with Europe, adjusted EBIT improved by EUR 2.7 million year-over-year, reducing the regional loss from EUR 3.3 million in quarter 1 last year to EUR 0.6 million in the current quarter. This substantial turnaround was driven by a strong tooling activity associated with project closures as well as benefits from our cost efficiency initiatives. Turning to the Americas. Adjusted EBIT amounted to EUR 9.3 million compared with EUR 10.4 million in the prior year. So while the region remains the strongest earnings contributor within the group, profitability was impacted by lower income from other operating items compared with the strong prior year quarter. So nevertheless, margin remains solid and the region continues to deliver a strong earnings contribution. In Asia, results were broadly breakeven with adjusted EBITDA of approximately EUR 0 million compared with a positive contribution of EUR 0.5 million in the prior year. So the decline was primarily the result of lower tooling business activities in that region. And -- but however, this was partially mitigated by solid Series sales performance and a more favorable input cost environment, but demonstrating also that the underlying operating performance in the region remains stable. So overall, we are encouraged by the regional profit development. The recovery in Europe highlights the effectiveness of our restructuring and efficiency measures. The Americas continue to provide a robust earnings foundation and Asia remains well positioned to benefit from future tooling activity and customer programs. Okay. So let me conclude today's presentation before then taking your questions. As already heard and -- no big surprise so far. The operating environment remains challenging. So the global light vehicle production continues to be characterized by a subdued demand and customer production schedules remain subject to fluctuations and the visibility beyond the near term remains limited. Despite these circumstances, we delivered revenue growth, improved profitability, a strong free cash flow and further strengthened the balance sheet. So we remain focused on the factors at least that we are -- within our control, which means cost discipline, operational excellence and working capital management. And the progress made in Europe demonstrate that our efficiency initiatives are delivering tangible results. So looking ahead, we remain committed to executing our strategy supporting the customers through upcoming vehicle launches. And all in all, our start of the financial year reinforces our confidence in the long-term prospects of our business. So thank you for your attention. And as already mentioned, we will now be happy to take your questions.

[Operator Instructions] The first question is from Mr. Alexandre Raverdy from Kepler Cheuvreux.

Two quick questions, please. The first one, could you please maybe elaborate a bit more on the main puts and takes in terms of top line and margin development in the coming quarters, if we take into account maybe normalization of those tooling revenues, rising raw materials and also sustained cost efficiencies? That's the first question. And then could you please provide more details on the new plant in Shanghai in terms of capacity and whether you would address local or international customers?

Okay. So thank you, Alexandre, for your questions. So in terms of your first question, so for sure, also no big news. We do not have a formal guidance out at the market. But nevertheless, let's give some color on that. So as mentioned on my conclusion, so the visibility is limited, right? But so far, what we can see based on the call-offs we have and are binding at least for the next 3 months, so we are close to our target and meet and achieve our expectations. So that means that as heard during the overall presentation, we are quite satisfied and confident with the start and also going forward, at least for the first half of our financial year which means until autumn, September. All beyond that is not really fixed and not really predictable. But again here, what we see and what we have as an exchange with our customer, again, here also until year-end, we are sticking to the targets and we are quite confident to meet that. And that transferred into a kind of profitability is also here that we should achieve and follow on that level we reported right here with the 6.6%. So we are quite confident that we are stabilizing with a kind of positive momentum, I would say. If this will materialize over the next couple of months is that we can lift up that a bit and further strengthen also our profitability. But that's all related, right, to the market itself. Also Tooling, for sure, it was for sure, a key driver during quarter 1 that was, I think, elaborated during the last 30 minutes. But we will have also Tooling revenue during the next quarters. So that's more or less already visible. This will for sure also support the next quarters. So all in all, we are kind of, yes, satisfied with the start and also looking forward, at least within our first half of the financial year. And then handing over to Markus to the second question.