OPmobility SE (OPM) Earnings Call Transcript & Summary

Welcome to this call. [Operator Instructions] Now, I will hand the conference over to our speaker, Felicie Burelle, Chief Executive Officer. Please go ahead.

Good evening, everyone, and thank you for joining us. Today, we have announced an adjustment to our 2026 financial objectives, together with targeted measures to reinforce our competitiveness in Europe. And before taking your question, I would like to explain the rationale for this decision and place them in the broader context of our strategy because I'd like to be very clear from the outset, it doesn't change at all the strategic direction that we have. It clearly remains unchanged, and we are fully engaged in executing this road map strategy. So -- but as you know, the transformation of the automotive industry is accelerating, and some market conditions have become more challenging than what we anticipated initially at the beginning of the year and, obviously, more recently during the third semester quarter. Therefore, we are adapting the pace of what is the execution of our road map rather than changing it. So that's why we remain fully committed to, again, our strategic priorities. The purpose here is to act early to anticipate this pace of change with discipline like we always do based on the clear assessment of what we believe are today the market condition in the automotive industry, but still with a clear focus on profitability, cash generation and net debt reduction. We entered this period with a solid fundamentals still a global footprint of more than 150 plants, a comprehensive technology portfolio, and what we believe strong operational capabilities and relationship with our customers. But I'll come back now to what is the rationale behind today's announcement. So first, talking about market environment and revised objective. Again, I said it, you know it, you cover it every day. The automotive industry is undergoing a really rapid and multifaceted transformation; regionalization, supply chains that are still very volatile, competitive dynamics, and the pace of change that is really different from one region to another. And we see that market conditions are more challenging than the assumptions that we have taken in our previous objective and that mainly diverged strongly -- more strongly during the first quarter. This includes inflationary pressures, more volatility on raw material and component costs. I'm talking here about resin, notably, and some electronic components such as PCB, and also weaker production trends in China. And the very recent shutdowns that were announced in Europe, but also in North America, that will affect in the months to come, before the end of the year, our local activity. So that's why, in light of this development, we have decided to align the 2026 objective. And therefore, we are now targeting an operating margin between EUR 430 million and EUR 450 million, free cash flow above EUR 220 million, and a reduction of the net debt at year-end 2026 compared with 2025. So this revised outlook is really to reflect the latest market condition, but not at all to alter the fundamental priorities that remain fully in force. And again, as I said, when talking about financial discipline and objective, profitability, cash generation, and net debt in light of the capital allocation framework that we have. So if we talk now about the targeted competitiveness measures in Europe, if we look a bit more into the details, you know that we still have a consolidation strategy in Europe. Over the years to come, we still have objective to grow. But overall, production volumes have declined and competition is more intense. -- in light also of Chinese manufacturers setting foot in Europe. And at the same time, Western manufacturers that are also adapting their industrial models. And given that we have a very local-to-local industrial approach, it obviously, at some point, impact us as well. So these developments, I believe, are structural and call for a targeted adaptation of our operating model. And today, more than ever, long-term profitability and growth are totally intertwined with the competitivity [indiscernible] we can deliver and offer to the market. That's why we launched more than a year ago, and we've covered that in many of the different results call, different initiatives, notably around R&D, around global business services, and also supply chain programs that we have throughout the group. And part of these initiative are the measures that we have announced today to clearly address some of the identified market and operational situation that we have in Europe. So the overall purpose is really long-term competitiveness. And it's our responsibility to anticipate those structural change, and that's why we have made those announcements. So in more details, if we consider the R&D organization in France, we have today in north of France 2 R&D centers dedicated mainly to the power train activity, which in light of the 2035 ICE ban in Europe, obviously, is impacting the overall activity of the R&D centers, and also the slowdown on some of the heavy mobility electric battery potential and the delay when it comes to the hydrogen market. So all in all, we will consolidate, merge those 2 organization within the Lachelle site and with the project to close Alphatech next year, Alphatech in the net. We will have then 2 sites, Lachelle and Sigmatech, fully dedicated to the OPmobility product portfolio. So when it comes to our industrial footprint, we have 2 targeted capacity adjustment. The first one in Germany with the contemplated closure of the Sterbfritz plant, which is in South Germany dedicated to the activity of our exterior component activity. And that answers to, as you can imagine, industrial overcapacity and sustained decline in what we see in the automotive production in this region. We will close the plant, but transfer the activity -- some of the activities to other existing German operation to consolidate our German footprint. And in France, we will adapt. The intention is to adapt our Flers site/flex [indiscernible] site in Northern France to reflect the lasting changes in our customer activity that is now not having a long-term positive prospect. So all in all, considering all of those R&D and industrial adjustments, it will imply 460 position in Germany, essentially production position, while in France, it will be around 310 position, most of it being in the R&D engineering fields. So obviously, we fully recognize the impact of those measures, and we will implement through the social dialogue that we have initiated already some time ago, and most logically, obviously, today with the different stakeholders that are involved in the implementation of those measure -- so the costs associated to all of that, restructuring costs are expected to be EUR 120 million and EUR 130 million, which we have to take in 2026, but with the major cash impact being expected next year, 2027. But this will enable to fully align the capacity very closely to what is the real demand today in the market and improve overall the industrial asset utilization, which is, again, very important for us to sustain a profitable growth in the years to come. So in conclusion, before taking your questions, 3 key message. We are aligning our 2026 objective with the latest market condition, which are, I would say, more impacting us with the recent announcement over the last weeks. Second, our strategy remains fully intact, and we are really engaged into making this diversification when it comes to region and products and increasing the content in our components and system from a technological standpoint. And third, we are taking those timely and targeted action to sustain the competitiveness measure, global plan that we have put in place, while at the same time, we continue to invest selectively as you could see with the announcement last week of the agreement that we have signed to acquire the Hyundai Mobis lighting activity. So it's about addressing the reality of what is our market and investing to what we believe is the needed condition for the profitable growth. And I'm really confident that we have a good road map to execute that and navigate through the environment that is not providing a lot of visibility in the short term. So thank you for your attention, and I will now take your questions.

[Operator Instructions] The next question comes from Thomas Besson from Kepler Cheuvreux.

A couple of questions, please, from my side. So it's Thomas at Kepler Cheuvreux. The first one is, have you changed your assumptions for global light vehicle production? Or are you still using the latest forecasts that come from globally, suggesting a slightly bigger decline in production than in H1? Or have you made your own assumptions for the end of the year? That's the first question. The second -- could you explain whether you're now assuming that you may not be able to fully pass the additional costs you're going to incur because of PCBs, or memory or logistics, or whatever, while previously, you were maybe more optimistic about your ability to have this compensated in Q4? And finally, on the EUR 120 million to EUR 130 million one-off you're guiding us now for the year, could you talk about the payback of these actions? That would be all for me.

Thank you, Thomas, for your question. On the first one on BEV, we have a mix, as always, in between taking what is the S&P or other [indiscernible] provision forecast, plus our own assessment in light of the program, the vehicle of the OEM, and the strategy of the OEM. So it's always a mix of both, and we always take anyway some headroom in terms of potential risk. So this has not changed. In terms of pass-through, indeed, we have some contractual framework in place. We've been very clear that it covers a good part of what we have, but not everything. We are still confident and it's part of the discussion that we have with the different customers. But the timing of it is potentially in question also in the context where, I would say, our customers are themselves having to manage their own challenges. On the last question, payback, it's broader of a, I would say, bigger plan, competitiveness, as we said, we have engaged in various initiatives. The one on R&D is clearly to reduce the numbers of hours, but also to rethink the way we are organized and to localize better by region and, all in all, to really reduce our development costs. So I would say this is part of a wider program that will happen in the years to come and that we embed in our capacity also to grow and stay competitive and develop the business with the different customers.

If I can just follow up on the first question. You mentioned shipments in Europe and the U.S. I was asking if you're revising your forecast. Can you be a bit more specific? So I think we've seen some announcements by Dacia or by Stellantis or they seem to be very close. Do you think that it's going to be wider? Or what exactly were you referring to?

They are punctual, but they are sudden. So we have to absorb that. That's part of what we do always, but they are quite sudden and those were not expected, same as the ones that were announced in North America to us this morning. So that's part of the reason why we have to manage that, and it's more a timing effect rather than anything else because indeed, those stop-and-goes are part of, I would say, the automotive life.

The next question comes from Ross MacDonald from Citi.

Kind of follow-ups really to Thomas' questions there. The first one, I know you don't guide/take [indiscernible] on revenues, but given you're talking about lower take rates in the second half, could you give some steer on potentially how we should think about organic growth in the second half in terms of year-on-year, just to try and triangulate where margins are heading in 2H? And then linked to that, it looks like just based on the guidance revision, potentially 100 basis points of lower margin in the second half versus first half. I'd just be interested in of that, let's say, EUR 50 million or EUR 60 million operating profit downgrade, how does it split? Because obviously, there's been an acceleration in BEV demand in Europe. So potentially some of this is related to C-Power. Some is obviously related to customer performance, as Tom alluded to. And then some is raw mat. But can you help us with like an overall weighting in terms of what is the dominant driver here? Because investors will obviously want to know, is this just about BEV? Is it just about customer performance? Is it just about raw mats? It would be really interesting to understand what is the dominant driver here that you weren't foreseeing at the first half results?

Okay. Thank you for your questions. Well obviously, we will be able to tell more on the revenues in a few weeks' time. But what we expect in terms of 2026 sales for Q3 and for the year, it's still to be above 2025. So we will do better than the market overall. But we will come back more in details in the weeks to come after the Q3 release. When it comes to the operating margin impact, I would say it's really a combination of many different aspects that you've mentioned, raw material, mainly resin rather than energy, some components, the PCBs, but also the volume impact. And actually, it's not C-Power that was mostly affected. It was more the exterior and module activity, and mainly in Europe.

Understood. Maybe if I could sneak in just one quick follow-up as well. Again, coming back to Thomas's questions, but the cost recoveries, can you help us to understand, are you seeing OEMs delaying some of those recoveries into, let's say, Q1 2027? Or to put it a different way, how should we think about '27? Are you confident that you can grow EBIT in '27 now versus this lower '26 base? Or is there an element of this cost inflation that the customers just will [indiscernible] not pay you for whatsoever?

I mean, it's a bit too early to discuss 2027. Now we have to execute. We're fully engaged in delivering what we just announced. And obviously, also there is a sensitive part to it, given it's -- those are commercial discussions. So, I mean, I prefer obviously not to comment on that. I understand the question, but this is a part of what we do always, and we remain fully engaged in doing it the same way that we have done in the past. It's more a matter of timing and the customer situation themselves.