Aumovio SE (AMV0) Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to the Aumovio Pre-Close Call Q3 2026. [Operator Instructions] Please be advised that today's conference is being recorded. Let me now turn the floor over to your host, Lutz Ackermann. Please go ahead.

Yes, good evening, everybody. This is Lutz Ackermann speaking. On behalf of Aumovio SE, I welcome you to today's pre-close call ahead of our third-quarter 2026 results, which will be published on November 5, and the quiet period, which will begin tomorrow on October 6. This call is intended for sell-side and buy-side participants. If you do not belong to either group, we kindly ask you to disconnect now. Today's call is designed to ensure all market participants have equal access to the latest publicly available information regarding Aumovio's performance. The key points we discuss are also available on our reference sheet, which has been published on the Investor Relations section of our website. Now, just over 1 year after Aumovio's stock market debut, I would like to highlight some of the key milestones and achievements that have shaped the company's first year as a publicly listed company. We successfully reached a settlement with BMW and expanded our partnership with business awards of EUR 1.5 billion, established our capital allocation framework, advanced our transformation program and executed structural measures to streamline our footprint. Taken together, these actions are strengthening Aumovio's competitiveness and creating the foundation for sustainable value creation and future growth. While we continue to make good progress on our strategic measures, the underlying market environment remains challenging. According to September Mobility data, global light vehicle production declined by 2.3% year-over-year in the third quarter. Ongoing geopolitical tensions in the Middle East continue to contribute to an environment of elevated uncertainty for the global automotive industry. In Aumovio's key European market, production remained broadly stable year-over-year, while North American production declined by 3.8% and China recorded a 5.5% decrease. The weaker performance in China was primarily driven by subdued domestic demand, although the impact on production was partly offset by continued strong export momentum from Chinese OEMs, which are further expanding their presence in international markets. China remains an increasingly important market for Aumovio, where the company continues to see additional growth potential going forward, having reorganized our operations there. Aumovio is also well positioned to participate in the growing international footprint of Chinese OEMs, supporting growth opportunities both in China and across global markets. Our sales development continues to be influenced by regional production trends, portfolio measures, the phaseout of lower-return business activities and foreign exchange movements. Foreign exchange effects remained a headwind in the third quarter, however, at a lower level than observed in the first half of the year. From a sales perspective, we currently expect the third quarter to mark the trough of the year before sales accelerate in the fourth quarter. On the earnings side, our continued focus on self-help measures, operational improvements and restructuring execution continues to support profitability with the restructuring program and expected savings progressing as planned. We continue to expect the second half of the year to be stronger than the first half and remain confident in delivering our full-year outlook. Price recoveries and customer compensation mechanisms require an explanation of the underlying cost increases and subsequent alignment with our customers. Consequently, the larger portion of the related recoveries is now expected to be recognized in the fourth quarter, while the associated cost increases are already reflected in the first half of the year and the third quarter's earnings. As a result, we currently expect third-quarter profitability to be at the lower end of our 3% to 4% margin range. The fourth quarter, by contrast, is expected to benefit from the recognition of customer compensations and reimbursements and, as in prior years, deliver an improved margin profile compared to the previous quarters of the year. Nevertheless, the timing of customer compensations and reimbursements does not change the underlying trajectory of the business. Overall, business development will be supported by operational improvements as well as the continued execution of our restructuring program and the delivery of associated savings. Free cash flow generation remains one of the highest priorities at Aumovio. While cash generation in 2026 continues to be impacted by restructuring and transformation-related payments, the underlying cash-generating profile of the business continues to improve. During the third quarter, we continued to see disciplined spending across the organization. Both capital expenditures and overall cash spending remained under tight control, reflecting our continued focus on efficient resource allocation and value creation. We have also continued to make progress in managing net working capital, which remains an important lever for the cash generation and financial flexibility. At the same time, it is important to remember that we expect selective inventory increases to strengthen our resilience in a volatile semiconductor and geopolitical environment. Free cash flow in the third quarter was additionally impacted by the initial cash payment related to the BMW Group settlement. Aumovio made a payment of EUR 100 million at the end of September, which fully hits adjusted free cash flow in the third quarter, while only 1/3 of the payment is reflected in normalized free cash flow. The remaining approximately EUR 250 million is expected to be paid in the fourth quarter. For the full year, the BMW Group settlement will reduce normalized free cash flow by approximately EUR 150 million. Adjusted free cash flow will be impacted by a further approximately EUR 200 million, resulting in a total settlement-related cash outflow of roughly EUR 350 million. Overall, we remain focused on working capital discipline, portfolio optimization and improved earnings quality in order to further strengthen cash generation over time. With regard to our transformation program, execution continues according to plan. We remain focused on reducing complexity, increasing productivity and bringing our cost structure to a competitive level. This also includes ongoing portfolio optimization initiatives. Over the last weeks, we completed the divestment of our plant in Belgium and signed the divestment of our cleaning business in the Czech Republic, with expected completion by end of 2026. Another key objective is the ongoing R&D transformation, where we remain on track to reduce our R&D-to-sales ratio to below 10% by 2027. We continue to focus our development resources on technologies with the highest value creation potential, intensify collaboration with ecosystem partners and implement additional efficiency measures across our global R&D network. Execution remains strong with EUR 115 million of R&D-related savings realized in the first half of 2026, more than EUR 200 million expected for the full year and further EUR 150 million planned for 2027. Looking ahead, our ambition is clear -- to move from restructuring and efficiency to profitable growth. Transformation is a journey, and we have deliberately focused first on shaping our organization, reducing capacity and boosting efficiency to ensure distinct competitiveness. We have been foreseeing strong headwinds, and we have acted early. So, we feel comfortable to the future to come. And this is also why we are now turning our organization towards growth. Now, let me provide an update regarding raw materials and memory products. We continue to observe elevated volatility in a number of raw material markets. However, for the majority of key raw materials, we have sustainable solutions with our customers in place that help mitigate the impact of raw material market volatility over time. Semiconductors remain an important part of products across the automotive industry and therefore naturally also for Aumovio. We are one of the key purchasers of semiconductors in our industry and therefore also for memory chips. At the same time, given our portfolio profile, we are not over-indexed in memory content relative to the broader market. For 2026, we have secured our supply requirements. Our focus now shifts increasingly to 2027, and we are currently aligning with customers the mechanisms on how to deal transparently and efficiently with the future volatile cost development. Here, we expect to make further progress over the coming months. Before I conclude today's call, I would like to highlight one final point. Earlier, I spoke about sales expectations for the third quarter and about growth ambitions prospectively. Against this backdrop, it's encouraging to see that one of Aumovio's most important future growth drivers continue to develop very positively, our partnership with Aurora. I had the opportunity to attend Aurora's Investor Day in Dallas in person and came away with a very positive impression. The key message was clear -- the discussion is no longer about whether the technology works, but about scaling deployment and commercial adoption. Aurora reaffirmed its ambition to deploy more than 30,000 driverless trucks by 2030, supported by strong customer demand and a growing partner ecosystem. For Aumovio, this provides further confirmation that we are partnering with one of the industry's leading players in autonomous trucking. We continue to expect the Aurora project to become a revenue contributor from the second half of 2027 onwards with the most significant growth contribution expected from 2028 and beyond as deployment scales and commercial adoption accelerates. That concludes my remarks for today. As always, I'm happy to take your questions now. Operator, please take over for the moderation of the Q&A session.

[Operator Instructions] And your first question today comes from the line of Christoph Laskawi from Deutsche Bank.

Two, please. The first one, could you just comment if management made any statements or there was further detail provided in recent meetings, if the decline of the margin in Q3 versus Q2 underlying is primarily volume driven and with the top line as the main driver? Or was there any incremental cost headwind in Q3 over Q2? And then just on free cash flow. Was there anything extraordinary outside of the EUR 100 million either to the positive or negative? Or should it follow outside that the usual seasonality with regards, obviously, taking into account CapEx and working capital comments that you made?

Yes, thank you, Christoph, for your questions. On the margin development, Q3 versus Q2, it's primarily the effect from costs that we had for higher raw materials and for memories, but not yet the compensation. And I think we make very good progress. We're tracking intensively where we stand each week with regard to the compensations we get, but it's simply a matter of timing. So, as much as we make good progress here and there, it takes a bit of time. And this is why we have more cost in the third quarter, but not yet the full compensation. It's basically that. Apart from that, as I just pointed out, we made good progress on reducing our structural costs with regard to R&D. So, with regard to that, we make very good progress. It's simply a matter of timing. Apart from that, we are very well on track. With regard to your second question on free cash flow, it's basically the normal pattern. I think we do make progress on streamlining our operations. And as that is the case, we also improve on net working capital that we have. Of course, when we speak about higher cost on memories and raw mats, that also applies to a little -- to a certain extent on free cash flow, but that's in line. We have been, again, very disciplined on CapEx spending. So, here as well, we are on track and only see those effects I just mentioned.

[Operator Instructions] And your next question comes from the line of Vanessa Jefferies from Jefferies.

Just wondering on the cost recoveries in Q4. Is there any chance that these slip into next year? Is that something a couple of your peers are highlighting?

Yes, thank you, Vanessa, for the question. So, that's not what we see today. I mean, we make very good progress on -- in the negotiations we have. Of course, and this is what I pointed out earlier that as of now, pretty much the discussions on 2027 volumes begin. This is something that we have. But for 2026 for those volumes, we are confident to see a large majority of that to be finalized by the end of this year.

And then just wondering if you have any comments on order intake and if that's picked up in the first half unless I missed that.

Yes, I think order intake has been okay. So I think this has been a bit better than recently. I think we have to, a little bit, differentiate between top line and order intake as much as order intake was a touch better than we've seen the trends earlier in the year. Top line was a bit more difficult or, let's say, developed a bit more softly in the third quarter, but I think this has already been discussed in earlier touch points, communication touch points that we had. Order intake was okay, I would say.