SCHMID Group N.V. Form 20-F Summary
Business context and reporting period
This annual report covers the fiscal year ended December 31, 2023. The financial statements are combined financial statements of the predecessor operating group, Gebr. Schmid GmbH, prepared under IFRS as issued by the IASB; SCHMID Group N.V. became the public parent upon completion of the Pegasus Digital Mobility Acquisition Corp. business combination on April 30, 2024. The shares and warrants began trading on Nasdaq on May 1, 2024 under SHMD and SHMD.WS.
SCHMID supplies capital equipment, software and services for high-end printed circuit board and substrate manufacturing, photovoltaics, glass and energy-storage applications. It operates manufacturing facilities in Germany and China, maintains global sales and service centers, and employs approximately 800 people. Electronics is the dominant business.
Financial results and key metrics
| € thousands, except percentages | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | 90,246 | 95,058 | -5.1% |
| Gross profit | 26,397 | 33,337 | -20.8% |
| Gross margin | 29.3% | 35.2% | -5.9 percentage points |
| Operating profit | 32,195 | 13,654 | +135.8% |
| Income before tax | 40,732 | 1,667 | +€39,065 |
| Net income | 37,954 | 3,591 | +€34,363 |
| Adjusted EBITDA | 39,099 | 19,937 | +96.1% |
| Operating cash flow | 9,897 | 280 | +€9,617 |
| Capital expenditures | 6,907 | 4,616 | +49.6% |
| Cash and cash equivalents | 5,710 | 8,332 | -31.5% |
| Total financial liabilities | 48,244 | 162,860 | -70.4% |
Revenue from technical equipment and processes was €78.7 million, broadly stable year over year. Spare-parts and services revenue fell to €11.5 million from €16.3 million. Machines generated €77.6 million of revenue, while spare parts generated €9.7 million and services €1.8 million.
The company reported negative total equity of €17.8 million at December 31, 2023, compared with negative equity of €54.3 million at December 31, 2022. Current liabilities were €87.3 million versus current assets of €74.2 million. Current financial liabilities were €26.1 million and non-current financial liabilities were €22.2 million. Shareholder and related-party financing remained significant.
Material changes versus the prior comparable period
- Revenue declined primarily because of weaker electronics demand in China and Taiwan, particularly for personal computers and smartphones. China revenue fell to €15.3 million from €39.4 million, and Taiwan revenue fell to €1.6 million from €12.8 million.
- Revenue growth in the United States, Malaysia and Austria partly offset the China and Taiwan declines.
- Gross margin contracted because of higher material and fixed costs against lower revenue.
- Selling expenses increased to €12.6 million from €11.4 million, while general and administrative expenses increased to €12.5 million from €7.0 million, largely due to business-combination, legal and consulting costs.
- Reported earnings benefited materially from nonrecurring or unusual items, including a €21.4 million reversal of previously impaired Silicon Group receivables, €9.2 million of exit bonuses and a €15.8 million gain from extinguishment of debt.
- The company repaid all debt-fund borrowings during 2023. Total financial liabilities declined by approximately €114.6 million, although cash also declined by €2.6 million.
- The order backlog for technical equipment and processes was approximately €48.7 million, with total backlog including spare parts and services approximately €55.0 million at year-end. The filing states that management expects the backlog to be recognized within one year in the MD&A, while the financial-statement note states that all backlog is expected to be realized within one to three years; this difference should be reconciled.
Cash flow, liquidity and outlook
Audited cash flow statements show €9.9 million of operating cash flow, €72.0 million of investing cash inflow and €83.7 million of financing cash outflow in 2023. The investing inflow was primarily related to repayment of a €70.0 million shareholder loan following the Silicon Group sale. Financing outflows principally reflected debt repayments.
Management states that pro forma cash following the business combination was expected to fund operations for at least 12 months, but cautions that this assessment depends on assumptions that may prove inaccurate. The company also undertook substantial post-closing obligations, including cash payments of up to €30 million to XJ Harbour over 455 days, a €2.35 million loan from Validus/StratCap, and additional public-company and listing costs.
For fiscal 2024, management forecast revenue of up to €130 million, Adjusted EBITDA of up to €35 million before de-SPAC, IPO-related and listing-related costs, operating cash flow of up to €21 million before those costs, and capital expenditures of up to €11 million. The forecast assumes recovery in China and Taiwan, conversion of the year-end backlog, continued customer orders and increased adoption of embedded-traces technology. The forecast was not examined or reviewed by the auditors.
Management commentary, risks and unusual items
- Management expects embedded-traces technology to support medium-term growth in high-end PCB and substrate equipment and believes the technology can reduce energy, water and chemical use compared with traditional processes. Patent protection for the full technology remains incomplete.
- Customer concentration is high: the two largest customers represented approximately 38% of 2023 revenue and the ten largest represented approximately 71%. The financial statements identify three customers individually exceeding 10% of revenue.
- The business is exposed to cyclicality in electronics and photovoltaics, delayed customer projects, supply-chain disruption, raw-material costs, China and Taiwan market conditions, geopolitical tensions, trade restrictions and foreign-exchange movements.
- Management identified two material weaknesses in internal control over financial reporting as of December 31, 2023: insufficient accounting and SEC/IFRS reporting expertise and ineffective controls over certain general IT controls. Remediation was underway, but no assurance is provided that the weaknesses will be fully corrected.
- The company had negative equity and significant current liabilities at year-end. Liquidity depends on operating cash generation, post-business-combination resources, customer collections and access to additional financing.
- A Chinese subsidiary has a claim for approximately RMB53 million plus interest against Beyond Force Company Limited, which has filed a counterclaim of approximately RMB123 million. Jurisdictional proceedings were pending at the High People’s Court of Guangdong Province.
- The business combination generated substantial transaction costs. Unaudited pro forma information includes a preliminary €70.1 million IFRS 2 listing expense and shows pro forma 2023 net loss of €45.2 million, or €1.189 per share; this pro forma information is illustrative and not indicative of future results.
- The company does not expect to pay dividends in the foreseeable future and intends to retain earnings for operations and expansion.
Most important facts for investors to verify
- Reconcile the MD&A cash-flow figures with the audited cash-flow statement, which reports operating cash flow of €9.9 million rather than €13.8 million.
- Confirm the proper 2023 operating-profit figure; the audited statement reports €32.2 million, while one MD&A passage refers to €31.3 million.
- Assess the sustainability of reported profitability after removing the €21.4 million impairment reversal, €9.2 million exit bonuses, €15.8 million debt-extinguishment gain and business-combination costs.
- Evaluate liquidity after the business combination, including the XJ Harbour payment schedule, the Validus/StratCap loan, lease obligations, shareholder and related-party debt, and ongoing public-company costs.
- Monitor remediation of the two material weaknesses and the quality and timeliness of future SEC reporting.
- Validate the €130 million 2024 revenue and €35 million Adjusted EBITDA outlook against actual orders, customer concentration, backlog conversion and embedded-traces adoption.
- Review the Beyond Force litigation, related-party transactions, the related-party sale-and-leaseback arrangement, and the company’s negative equity position.