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

Good afternoon, everyone, and welcome to the EuroGroup Laminations 9 Months 2025 Financial Results Presentation. [Operator Instructions] I now have the pleasure of handing over to Ilaria Candotti, Head of Investor Relations. Please, the floor to you.

Thank you, [indiscernible], and welcome again to EGLA First 9 Months 2025 Results Presentation. Together with me, we have the Group CEO, Marco Arduini; the Deputy CEO, Isidoro Guardala; the Group CFO, Matteo Perna, who will illustrate the presentation. Please note that, as usual, the supporting deck and the press release are available online on the EGLA's website at the Investor Relations section. I now hand over to Marco. Please, Marco, over to you.

Welcome to everyone, and thank you for the interest in EGLA results for the 9 months 2025. The results of the first 9 months are impacted by a slowdown in Q3 that had major causes, especially coming from North America, where the condition in USMCA that were created during the last months have slow down the electrical market in automotive. Overall, the condition in Europe remains good for the mobility, but weak for the economical situation that is impacting more the industrial business. And on the contrary, the Asian country continue -- market continue to grow. So our total revenues for the first 9 months end up with EUR 614 million turnover. So we are below the 9 months of 2024, 5.4%. And in terms of margin, we are at EUR 69.8 million EBITDA adjusted that is below 14.9% compared to the first 9 months in 2024. Entering in the details. So as I mentioned, the revenues slowed down in USMCA because during the last months were introduced new tariff that were hitting the components made with steel that was not produced in U.S.A. this kind of new tariff impacted as well the so-called USMCA production and our plant in Mexico. In addition to this, the decision to cancel the tax credit on BEV created a disruption as well in the market and this were impacting the order that we received from our customer. On the other side, Europe, the European market in terms of electrification is growing. Our revenue compared to last year are lower in view of the double-digit in view of the different mix. So we have as well more products that are in plug-in hybrid and in hybrid. and as well in view of the competition that is coming from Asian competitor. In addition, in China, the revenue are progressing and increasing in view of the market that is growing double digit and is becoming more and more the most important market in the electrical vehicle in the world. If we move to Industrial Infrastructure, the revenues slightly grow compared to the first 9 months 2024, thanks to the Asia growth that is, for sure, led by India. And this was counterbalancing the weak situation that we saw in the first 9 months in U.S. and as well a fragile situation in Europe. Overall, this, let's say, overall situation of tariff and as well uncertainty that -- and as well competition increasing, especially in Europe, impacted our margin in both segments also in Q3. And so we have a lower and worse operating scale in the Western region than last year. If we move to EV order book and pipeline, order book remains solid. But in view of the big shift that we saw in North America in the electric -- in the electrification, the order book was reduced mainly for this reason, while the discussions for new projects in China and in Europe are still meaningful and relevant. The pipeline, in fact, remains stable at EUR 2.5 billion. It is important to say that in view of the overall situation, we have let's say, fostered our program in order really to improve our performance and efficiency in all our operation in order as well to be -- to make an upgrade of our efficiency and as well the ability to deliver cash flow. So we have progressed our work in the different program that we have launched in May this year with the pilot in [indiscernible], Italy, and we have as well launched the pilot in Mexico. And we have a detailed program and plan that we are executing that is aiming to improve and reduce our cost more than EUR 10 million per year. Looking then to the whole situation and as well considering the impact and the effects, we have updated our 2025 revenues. And we target now minus 10% versus 2024. With regards to the EBITDA, we have updated this forecast and we aim to target between 11% and 12%. With regards to the positive with regards to the operating free cash flow, we confirm the positive results at the end of the year, including as well CapEx for EUR 70 million. And we have updated the midterm guidance, and we will see this at the end of the presentation. I now leave to Matteo in order to enter more in the details of the financial results.

Thank you very much, Marco. And yes, so starting from the left-hand side, revenues. As we said, the decrease in the 9-month totaling was 5.4%, of which you can see that for the E-mobility business, the decrease was in the range of 9%, consistent with what Marco was saying, especially due to the evolution of the third quarter business in North America. Whilst on the industrial business, we are posting an increase in the range of 0.6%. Worth to be remember and highlighted that the result as of the end of September 2025 is as well including the consolidation of our Indian operation, which is accounting for approximately EUR 38 million. Moving on EBITDA adjusted we are now in the range of EUR 69.8 million, implying 14% margin compared to the revenues. You see the decrease in EBITDA adjusted, it's impacted both segments. Worth to be mentioned that in the quarter, so in this quarter, we have posted an EBITDA adjusted in the range of EUR 25 million, which is implying approximately 13.5% EBITDA margin in the quarter but it's, I'd say, good result compared to what we have posted in Q1 and Q2. On EBIT side, due to the reduction of EBITDA and as well due to the EUR 10 million increase in D&A compared to 2024, you see that EBIT is in the range of EUR 23.9 this is implying an EBIT margin of 3.9%. CapEx have been reduced consistent to our expectation. We are now in the range of EUR 54 million. And I have to say 80% of the CapEx that we posted for the benefit of the E-Mobility segment. We can move to the next slide, please. So additional information in terms of breakdown of our top line. So you see that in terms of segment contribution now e-mobility is representing approximately 62% compared to 64% in 2024. EMEA is still the largest region, representing 51% of the total amount of business that has been generated by the company. Worth to be mentioned, the growth of Asia but due to the positive evolution of our E-mobility business in China, which is posting an increase in the range of 72% compared to last year and as well due to the consolidation of Kumar. Asia is now representing 15% of the total amount of business. USMCA's now approximately 1/3. If we move to the next slide, please. Yes. So on EBITDA adjusted, as we said, the reduction is in the range of 15% compared to 2024. It's worth to be mentioned that out of the EUR 4.3 million for the Industrial segment, this is including EUR 0.7 million due to the so-called new market tax credit that we get in our U.S. company, Eurotranciatura USA, whilst in 2024, the amount accounted was EUR 2.7 million. Then the amount of EBITDA adjusted that we have accounted in the E-mobility segment, it's in the range of EUR 45.5 million, which is implying a reduction in the range of 16% compared to 24 we said consistent with the evolution of EBITDA and as well consistent with the evolution of the EUR 10 million increase in D&A, now we stand at EUR 23.9 million, which is implying an EBIT reported margin in the range of 3.9%. Worth to be said that in the comparison versus 2024, we had an impact due to the ForEx evolution in the range of EUR 9 million with respect to the top line. And in terms of EBITDA, the comparison versus 2024, it's negative by EUR 1.2 million. Again, this is the so-called ForEx effect. If we move to the next slide. So in terms of net working capital, we are EUR 297 million. So this is implying a result which is worse compared to our target of approximately EUR 35 million. And this is 100% coming from, again, the headwind -- the negative headwind in North America impacting our operation in Mexico. Due to the supply chain in Mexico, we have approximately lead time in the range of 90 days for the raw material, which is coming from the Far East. And therefore, the result as of the end of September is including an excess in stock of approximately EUR 35 million that will be reabsorbed by year-end. to be said that as well approximately EUR 5 million in terms of receivables were overdue as of the end of September due to the certain problems expected suffered by certain European OEMs due to cyber attack. So again, this is important to be said as well and let's say, luckily, such overdue has been sold in October. Moving to the next slide, please. So you see the evolution of the result plus the increase in the net working capital had an impact as well in terms of net debt -- now the net debt as of the end of September was slightly below EUR 300 million. This is implying a 2.9x net leverage on the basis of the last 12 months EBITDA adjusted and worth as well to be highlighted that this is including EUR 20 million related to the buyout of the Chinese minorities, which took place in March this year and as well the approximately EUR 8 million dividend distribution, which was performed by the company in May. I now leave the floor to Isidoro on respect to the following page, which is an highlight on the operational excellence program that we have launched worldwide.

Thank you, Matteo. These 4 pillar of our activity are [indiscernible] connected [indiscernible] of the result, which [indiscernible] our first target daily. But we will [indiscernible] application. About the operational excellence, we are working to improve, of course, the margin in the production and decrease the scrap, but also it's very important, the increasing of the OE. We are targeting this kind of result, and we are achieving that. And this can give -- sorry, to the company the opportunity to minimize the investment in new capacity while utilizing all the investment already done. about the supply optimization, news. About the supply chain logistics transformation, we are targeting also to start new activities in the management of the raw material that are coming from far East using technical and commercial contract with the supplier with our suppliers. About the cross-functional governance, I want to remark that we are starting to improve a new system for the management of the customer demand to fulfill better forecasting and using and activating also advanced system with the AI system that already we are testing in the companies.

So moving to the next slide on the basis of what we introduced before with respect to the evolution of our underlying markets, we have updated consistently both short-term guidance and midterm guidance. With respect to the short-term guidance focus on full year 2025 results, we have updated our expectation in terms of revenue evolution, which we are considering an increase of 5% in the latest set of guidance that we released on August 4. Now considering a decrease in the range of 10% compared to 2024, we are now envisaging EBITDA margin to be in the range between 11% and 12% and then we confirm both CapEx in the range of EUR 70 million and a positive operating free cash flow. going forward with the so-called midterm guidance, we have updated our expectation in terms of revenues figure, which are now in the range between 10% and 12%. We are confirming in the back of the important cost saving initiatives plan and as well the performance excellence plan that we have started both in Italy and in Mexico that will be rolled out as well in China next year. We do confirm the 13% average EBITDA margin that we are now presenting to you. It's as well confirm the CapEx intensity despite the expected, let's say, lower increase of the revenues compared to the last set of guidance that we discussed on August 4. And as well in terms of return on capital employed, we are now considering a range between 13% and 15% to be achieved in 2028.

[Operator Instructions] The first question today comes from Alberto Gegra.

So I have a few questions on the deal with FountainVest. First of all, on the Golden Power, if you can remind us the timing of this and generally speaking, your feeling on that. Then on the several antitrust and other green lights that you need, if you can please recap which one you have obtained and which one are still pending. Then one last question. I would like to understand if this guidance revision also on the midterm could have implication on the agreement with FountainVest.

So thank you very much, Alberto. Yes, it's more to be said that, of course, the company is partially involved than the discussion which are happening between the shareholders. So we can provide you an answer with what is, let's say, under control by the company. The company has been now engaged in the discussion for the FDI request that is having an impact both in Italy, Golden Power and as well in India, [ PM3. ] And I have to say that so far, all of the interaction that the company has with the authorities have been always constructive. With respect to the antitrust, I have to say that again, on the basis of what the company has been involved, we know that out of 5 countries impacted by the antitrust request, 4 have already provided green light to our request.

So I think it's important to add that, of course, there are topics that are -- we are in a session and the topics that are related to the shareholders are -- cannot be commented by us. So this is with regards to the second part of your question.

The next question comes from Emanuele Negri.