EuroGroup Laminations S.p.A. (EGLA) Earnings Call Transcript

Good afternoon, everyone, and welcome to EuroGroup Laminations First Half Presentation for 2025. Before I hand over to your host today, please be advised there will be an opportunity to ask questions at the end of the presentation. I have now pleasure handing over to Ms. Ilaria Candotti, Head of Investor Relations.

Thank you, Dana, and welcome again to EGLA First Half 2025 Results Presentation. Together with me, we have the Group CEO, Marco Arduini; the Deputy CEO, Isidoro Guardala; and the Group CFO, Matteo Perna, that will illustrate the presentation. Please note that the supporting deck and the press release are available as usual online on EGLA website at the Investor Relations section. Now I leave the floor to our CEO, Marco Arduini. Please, Marco, the floor is yours.

Thank you. Thank you, Ilaria, and welcome as well from my side to all of you. Thank you for attending to this session. We are here to present our first half results for 2025. Let me just say a few words before starting. The second quarter in 2025 will be remembered as a turbulent second quarter. This quarter was impacted by many news that were in some way, affecting negatively the overall environment. Tariff and trade were a news every day in the newspaper. The volatility and the uncertainty in the economy increased the ForEx fluctuation and the major currency shift was as well another topic. And all this create cost pressure. We saw some cost increasing. And in addition to this, we saw as well policy changes impacting as well the Green Deal. And finally, all this created some disruption in the supply chain. So the resiliency of EGLA is one of the key characteristic because the macro trends that are behind our business are remaining there. The diversification that we have created in our business model is offering us the flexibility that is capable to follow any strategy that is required. And of course, this condition is putting all of us in the condition to take action to improve margin and improve cash flow. So with these premises, I want to comment this page. In this page, we have summarized the results and the key facts that are related to our group for the current situation. So our revenues overall were achieving EUR 429 million sales. So it is 1.6% more than 2024. If we speak about E-mobility, E-mobility increased slightly 0.4% compared to last year. And the Industrial & Infrastructure business grew 3.6%. Of course, Asia remains the key region of behind the growth, both for the E-mobility and for the Industrial. While Europe is stable in the EV, in the E-mobility and is -- remain fragile in the Industrial & Infrastructure. And North America is, of course, the weakest region, both in E-mobility and Industrial. Overall, this situation achieved put us in the condition to achieve an EBITDA of EUR 44.8 million, equal to 10.4% of marginality. And of course, the situation that I mentioned impacted this marginality. Overall, our EV and order book and pipeline remains strong. Order book remains at EUR 5.1 billion and we had some postponement of new programs in North America. The pipeline is at EUR 2.6 billion and is reflecting a strong conversion of order book -- in order book and the current market uncertainty are impacting in the discussion, mainly in Europe and in North America. As I anticipated, we promptly react to the market condition with a performance improvement program. Through this, we have launched different initiative in Europe in second quarter and this initiative will be rolled out as well in North America in Q3. And we have as well activated different initiative in order to compensate the supply chain impact. Overall, thanks to this performance improvement program, this will support the result of the year. So in terms of outlook, we see the guidance on the full year 2025 that is aiming to reach a 5% increase in terms of revenues versus the full year 2024. We see a recovery in the EBITDA margin adjusted at 12%. And we confirm as well the positive operating free cash flow from operation. With regards to midterm guidance, this remains confirmed in view of the macro trends behind our business. If we move to next page, this is, of course, 1 page dedicated to the news that arrived last week. On July 28, EMS, that is the EGLA main shareholder and FountainVest, that is an Asian investor, announced a strategic alliance to accelerate EGLA's global growth in a rapidly evolving market. And [ ERR ] summarized the key highlights of this agreement. And this agreement is including a sales and purchase agreement for the transfer of the stake of EMS and a co-investment agreement in a new holding. Tikehau Capital, that is the second largest shareholder of EGLA also has expressed the support to this deal and has as well finalized a share purchase agreement. So the transaction is, of course, subject to customary regulatory condition, and it is expected to be completed by the first half of 2026. At closing, EMS and FountainVest will jointly hold through the new holding, 55.3% of the voting share capital in EGLA. Following the closing, a mandatory tender offer with an offer price at EUR 3.85 per share will be launched on the company remaining 44.7%. So the price of EUR 3.85 per share implies a market capitalization of EGLA of approximately EUR 626 million. This is, of course, a news that we had to bring as well to this meeting in order to highlight what EMS and FountainVest have underwrite. I now pass the words to Matteo in order to enter in the details of all the financial results.

Thank you very much, Marco. So on the revenue side, you see the total amount of revenues generated in the first half of 2025 was approximately EUR 429.2 million, which is implying a slight increase of approximately 1.6% compared to the first half of 2024. This is the result of basically a flattish performance for the EV and automotive E-mobility segment, which has grown to approximately EUR 265 million compared to EUR 264 million in 2024, whilst the Industrial & Infrastructure solutions has increased the revenues to EUR 164.2 million as well on the back of the consolidation of the Kumar business, which is approximately EUR 27.8 million. On EBITDA adjusted side, 10.4% was the total amount of EBITDA adjusted margin accounted in the first half. And we have reported in light of what Marco was explaining before, a reduction in the EBITDA margin for both business units. And as we said, this is the result of the second quarter, which was, again, impacted by temporary effect and as well uncertainty but we do hope that will be cleared in the second part of the year. Beside the impact on the EBITDA, you can see as well the evolution on the EBIT side, which was in line with what we were expecting due to the fact that this is mainly driven by the evolution of the EBITDA, but as well the fact that over the first half, we have accounted approximately EUR 27.6 million of D&A, consistently with the execution of the CapEx plan that we have executed over the last years. As expected, the CapEx are in the range of EUR 40 million, of which 75% are related to the E-mobility segment, whilst the rest is for the benefit of the Industrial & Infrastructure solutions. So if we move to the next slide, Yes. In terms of breakdown by business unit, you can see that basically, this is even split between the first half of '24 and '25. And we have as well on the basis of the latest input as well that we received from the auditors, updated the geographical breakdown now considering the country of our final clients. So this is a change compared to what we were reporting before. Therefore, you see that on the basis of the new representation, Asia, it's now accounting for approximately 14% compared to 6% in the first half of '24. EMEA is still the largest region with approximately 53% of the total amount of revenues that we generated in the first half. Main message, there was a strong increase in terms of number of sets sold for the traction business in the first half of 2025, which were approximately 2.2 million compared to the 1.8 million that we sold in the first half of '24. And I have to say that out of the 5 new SOPs, which were expected to be started in the first half, 3 of them were postponed to the next year. All of them are making reference to 1 customer in North America. On Home & Industrial, is still fragile the performance in Europe. So we are satisfied by the contribution of the growth of our Asian business. So besides India, I have to say that as well China, it keep growing in light of all the business development activity, which have been carried out over the last month from our sales force. And in terms of segment, I have to say that the Energy segment was the one which was reporting the worst performance in the first half in light as well of the situation of one of our main clients in the U.S., which was indirectly impacted by the discussion on the tariff. If we move to the next slide, please. Yes, we spoke about the evolution of the total EBITDA adjusted margin, which is approximately 10.4%, which for the E-mobility solutions business, it's approximately 10.8% compared to approximately 12.1% in the first half of 2024. And I have to say that this is in line with our budget, which was already considering a reduction in the EBITDA margin on the basis of a different mix as we commented as well last time. What is not in line with our budget is the performance of the industrial business, which was impacted by the situation in North America, which was not expected and was on the back of the liberation day. But we do think that this will lead this situation in the second part of the year and as well the performance and the related impact in terms of operating scale in Europe due to the weakness of the underlying demand. On the EBIT, we spoke now D&A representing approximately 6.4% of the total amount of revenues, and this is implying an EBIT reported, which is in the range of 14.9% (sic) [ EUR 14.9 million ] compared to EUR 40 million in the first half of '24. If we move to the next slide. So I have to say the performance from the economic standpoint was counterbalanced by a positive performance on the balance sheet side and therefore, on cash flow generation. So we have increased -- we have decreased our net working capital by approximately EUR 25 million over the last quarter. You see that was approximately EUR 290 million at the end of March and now stands at approximately EUR 265 million. This is implying an incidence of approximately 30% over the last 12 months revenues. And this is the result of reduction of the inventory, which is now approximately EUR 365 million. Trade receivables are in line on what we were considering and are equal to approximately EUR 166 million. And on payable side, you see that we have reported EUR 266 million. So if we move to the next slide, you can see on the simplified net debt evolution that we reported at the end of June, EUR 264 million as total net debt, which is implying over the last 12 months adjusted EBITDA, a net leverage ratio in the range of 2.4x. This is including EUR 20 million cash out related to the one-off effect due to the buyback of the minorities of our operating companies in China. And on top of that as well the amount of dividend that we paid in May, which is totaling approximately EUR 7.7 million. And without the impact of both the minority buyback and as well the dividend, the net debt would have been in the range of EUR 244 million, implying a net leverage of approximately 2.2x. So this is a positive cash generation compared to the result that we posted at the end of March. This is in line with our guidance of having a positive operating cash flow by year-end. And I have to say that this is as well better compared to what we were considering in our budget. If we move to the next slide, as Marco said, one of the first reaction, which were the management has taken in order to counterbalance the current market volatility was to get started with an industrial efficiency program. And I'd like Isidoro to outline the key terms of our industrial performance improvement program.

Thank you, Matteo. We focus our attention to improve some key points, important key points in the operation, but also in the organization. The first point is connected to the operational excellence, and we will work -- we already started and apply a plan to have a major efficiency in the material, in the machine utilization and in labor cost. This can give us the opportunity to improve the utilization of the machinery and to increase the OEE of the group. This was already started applied in Europe, and we will go to apply the same program in North America starting from Mexico. The second point are connected to the supply optimization. We will improve our activity with the suppliers. We will improve our profitability on the cost of the material and also to have benefit in this kind of area. And this is strictly connected to the supply chain, logistics transformation. We installed a new organization fully dedicated to this matter. And we started also this from Europe, and we started also in North America through Mexico. And this can give us the opportunity to optimize the cost locked to the inventory and also shrink the cost of the logistics and transportation. And in view also of the new situation, we create a group of people specialized to coordinate and to governance the functional ownership of the major activities across the performance of the group.

Thank you, Isidoro. So we do think that the execution of this program will allow us to match the guidance for the short term that we are now summarizing in this slide. So you see that we confirm despite the reduction envisaged in the growth of our top line, which is now expected to be in the range of 5% on the basis of the assumption of stabilization of the macroeconomic condition in the second part of the year. So at least we want to see a framework clearly defined to be able to cope with. We do think that through the execution of our industrial efficiency program plus supply chain recovery initiatives that we have promptly activated in the second part -- in the second quarter of the year, we do think that with -- the expected evolution on a half-on-half basis of our business will be part of our ability to match the 12% margin guidance for full year 2025. The rest of the guidance is confirmed. So EUR 70 million will be the amount of CapEx executed, which will be executed this year. And again, as we said before, we will confirm as well the ability to generate a positive operating free cash flow by year-end. The outlook for the medium, long-term period is confirmed.

Thank you, Matteo. Thank you, Isidoro. And we can pass the word back to the team in order to start the Q&A session.

[Operator Instructions] First question today comes from Ms. Monica Bosio.

Yes. Can you hear me?

Yes, we can indeed.

Just a few questions. The first is on the order pipeline. How much of your order pipeline has been converted into orders? And I was wondering if you can comment on your order trend in China, splitting between orders awarded by Western car players and orders awarded by Chinese players. This is my first question. And in relation to this, I was wondering if you can share with us what are the revenues do you expect from China this year? And if you can share with us, I don't know if you can, the margins in China in the E-mobility segment. The third question is on the cost savings program. Do you have quantified the savings for 2025? And if yes, can you share with us?

Okay. On the pipeline conversion rate, we converted approximately EUR 300 million of pipeline into order book in the second quarter of the year. And I have to say that basically all of the conversion of the pipeline was concentrated in the USMCA area. China is still representing the vast majority of our pipeline given that as well the commercial discussion in Europe and North America have been temporarily impacted by the confusion and uncertainty related to the tariff situation. So given that China is still one of the few geographies where there is a clear and defined framework, I have to say that pipeline remains very strong, and it's approximately more than EUR 1.7 billion out of the total EUR 3.1 billion that we are reporting as of the end of July. I have to say -- I'll let Marco to comment on the conversion against the Chinese OEMs vis-a-vis Western OEMs. What we see is that it's increasing now the amount of new orders that we receive from Chinese OEMs on the back of -- all of them are trying to identify new innovative solution, new technologies, which were maybe already adopted by certain of our clients as well in the past. Now there is a push in the Chinese market as well with respect to technologies that we adopted earlier in other geographies in the world. And we do think that this -- for us, it's a good opportunity to continue our market -- our local market penetration. I don't know, Marco, if you want to add some...

Maybe just to say that we see the margin in China as well for -- with the Chinese OEMs or for the Chinese market in line with our practice. Of course, this is connected as well to the technology that is inside our products, and this is probably the reason for which we are capable as well to maintain a good marginality. In terms of [indiscernible] -- in China, the production for the Chinese market is growing and, of course, is more than 50% today. And of course, within this percentage, there are Chinese OEM and as well international OEMs that are operating as well in China. And the portion of Chinese OEMs is growing. And today, it's probably in the range of 10%, 15%, but it's growing quarter-by-quarter.

Okay. Very useful. And for the cost savings, if you have a quantification, I don't know.

Yes, we have. And the cost saving initiatives that we are now executing will represent approximately slightly less than 10% of the total amount of EBITDA to be reported in the second part of the year.

Slightly less than 10%? Okay.