Ford Otomotiv Sanayi A.S. (FROTO) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Gailey, your Chorus Call operator. Welcome, and thank you for joining the Ford Otosan A.S. conference call and live webcast to present and discuss the full year 2024 financial results. At this time, I would like to turn the conference over to Ms. Gul Ertug, Chief Financial Officer; Ms. Bahar Efeoglu Agar, Head of Investor Relations; Mr. Unal Arslan, Corporate Finance Leader. Ms. Ertug, you may now proceed.

Thank you very much, Gailey. Hello, good afternoon, and welcome to our investor webcast call for the full financial results of 2024. So as usual, we will be giving you our presentation together with our entire team. I will be kicking off with giving some key highlights, key evaluation for the year then for the details of the physicals and financials, Bahar and Unal will support me. At the end, as Gailey mentioned, we will give you the update for our guidance, how we see 2025 and open it up for questions, and that is the agenda for today. So let's start. And while we are starting, I would like to also mention that over the course of the year, we paid attention to your request on several key changes in terms of data providing to you both the data points and the style of the presentation. We try to do that to make it easier for you to follow and maybe to make better analysis on your work. So I hope you also found that useful. Having said this, let's start with the 2024 highlights. I will start with our domestic market performance. We have concluded our market position in the third ranking in Turkey domestic markets with an overall market share of 8.9%. And as our key strength is the commercial vehicles, we maintained our #1 position in the total commercial vehicle market with a market share of 28.7%. When we deep dive into the financial section, you will see that, in fact, our overall domestic volumes contracted by 2% and due to the competitive pressures we have seen in the market and its effect on the pricing, the overall revenues on the domestic end came down by 13%. As a quick look into the export performance, we have maintained all-time high export sales of 546,000 units. The export volumes have been up by 11% and revenues up by 5%, respectively. Overall, the profitability of the combined business gave us 7.2% EBITDA margin and EBITDA per vehicle equals EUR 1,760 almost. And like we advised you in the earlier talks. In fact, we have seen this normalization in profitability like we had projected in the heavy investment period while we are conducting our both growth operation and also the electrification of our portfolio. As a result of this, on the very right column, now we would like to update you with the final capacity levels we have reached as of 2024 and overall, Turkey and Craiova total production capacity reached 935,500 units (sic) [ 934,500]. Out of this Yenikoy are -- we have 2 plants in [ Kocaeli ] Yenikoy and Golcuk. Yenikoy has 405,000 and Golcuk has 207,000. Craiova capacity has also been upgraded to 300,000 levels and Eskisehir is at [ 22,500 ]. Overall, the capacity utilization within our plant this year, combined level reached 81%, out of which Turkey is 77% and Romania is 90%. As of this year, we have also distributed our dividends. The sustainable dividend payment since 2004 continued, and overall dividend payouts have reached $6.1 billion. Let's continue to the following page. And with this level, I will leave the floor to Bahar. Afterwards, I will again join you. Please, floor is yours Bahar.

Thank you, Gul Hanim. Hello, everyone. Thank you all for joining us today. Gul Hanim has shared some points about the Turkish market performance, I will also explain the full year outlook in more detail. This year, ongoing type monetary policies, economic uncertainties and difficulties in reaching auto financing had an impact on the domestic market which normalized throughout the year actually. As a result, after historical high sales of last year, in '24 automotive market has a new record of almost 1.3 million units, which was year-over-year flat performance. When we look at the segment breakdown, passenger car sales had a slight increase of 1%, and it was accounted for 77% of the total sales, whereas medium commercial vehicle sales also showed an increase of 10% with better availability in the market. But on the other hand, light commercial vehicle and heavy truck sales experienced declines of 12% and 13%, respectively. Let me also explain the main drivers of the overall performance. First one is the impact of general safety regulation which is the GSR. And it triggered the pricing competition in the market, especially arising from the Chinese brands, we have seen incremental growth in their sales performance. The second point is the increased special consumption tax exemption, price limit for the disabled citizens. I should say that this also has a remarkable impact on the PC demand. As the share of disabled sales in the segment was over 20%. This figure is also similar for our domestic PC sales as well. The other one is the robust demand prior to the local elections and the last point seems to be the lower availability in light commercial vehicles segment as a result of the New Courier extended to the ramp-up period and end of life cycle of our peers products, some products actually. Next slide, please. So in this competitive environment, we had a flat year-over-year sales of 114,000 units. While we were preserving our third position in the total Investor Day with almost a 9% market share. In this period, our profitability over market share focused on passenger car segment has continued and our market share remained steady at 3% level since we are a relatively small player in this segment. On the other hand, we sustained our profitable growth strategy in commercial vehicle segments, and we continued our undisputed leadership with nearly 29% share. Thanks to the rising demand for the renewed Custom, and we have a better availability in transit. Our market share reached to [ 29% ] in medium commercial vehicles, where we gained more than 6 points from the peers year-over-year. However, we secured a second place in light commercial and heavy truck segments with a year-over-year contracted share as we were not able to quickly respond to the market demand, especially in the first half due to the longer-than-expected renewal periods of New Courier and continuous pricing focus pricing discipline in Ford trucks against rising pricing wars actually in that period. Next slide, please. Let me continue with the export outlook. When we look at the overall European market performance despite the strong basis of last year, which was around [ 15% ] year-over-year growth, the total market was slightly increased by 1.6% in '24. In fact, the growth was higher in the first half of the year, which was largely supported by the general safety regulation impact, then the regulation came into execution then the impact was faded away actually. However, with the rising economic concerns and lower pent-up demand, the market was weakening starting from third quarter, and this led to a normalization July onwards. As a result, while there was a moderate growth in the passenger car market. The [ van ] segment, which is our largest export market rose by 7.2% and it was fueled by the -- mainly fueled by the aged vehicle park, accelerated fleet renewables and e-commerce trend. But in contrast, heavy truck market declined by 6%, mainly due to increasing freight prices and the ADAS regulation, which was the advance safety systems. In this market condition, Ford Pro in Europe was able to reach to a record market share of 15.4% by the year-end while being #1 CV brand in Europe for a decade, thanks to accelerated shipments of our renewed flagship products. And I should say the continued success of the Ford Pro's customer-centric approach also played a crucial role in this performance. Furthermore, we continue to support Ford's performance in PC segment, with the production responsibility of the best selling Puma product, which will be produced in our Romania plant. Consequently in this period, Ford Otosan plays a key role in Ford's success by producing 3/4 of Ford's EV sales and more than 1/3 of the PC sales in Europe. This is all from my side. Thank you for listening. Now I hand over to Gul Hanim to share the main developments since we last met. Thank you.

Thank you, Bahar. So I was saying I just called the show on this page from Bahar because there was a page where we told our key story to you what we are trying to achieve in our growth story and also in our electrification journey. This slide now finally concludes that what, in fact, we have now delivered what we have promised to do. So with the actions, now our production capacity has reached 935,500 (sic) [ 934,500 ] Within that, we can produce 430,000 engines, 112,000 rear axles, 18,500 transmissions with a capacity utilization of 81%. In Turkey plus Romania, we have reached a total of 26,000 of employees. In the capacity breakdown, [ Kocaeli ] plant, now the 1-Ton, in the 1-Ton production area, we are producing both our Custom vehicles and the Volkswagen transporter units have been achieved its launch phase since December. So the total 1-Ton commercial vehicle capacity in Yenikoy reached 405,000 as 2-Ton capacity in the Golcuk plant is 270,000. In Craiova, we have upgraded our Craiova to 300,000 and its breakdown is 200,000 Ford Puma and 100,000 Ford Courier. Over there we also have our EcoBoost engine production of 350,000 capacity. Since 2021 to 2014, in fact, we have concluded, we have now completed EUR 2.4 billion investment -- EUR 2.4 billion worth of investment mostly conducted in Turkey. And the flotation of these projects supported us to create 3,000 additional employment in Turkey. In Eskisehir plant, we have our F-MAX and F-LINE production with 22,500 capacity of vehicle and 80,000 units of engine. So with all of these efforts, we are showing that we are a very significant, very important strategic partner of Ford in the commercial vehicle area. We are really happy to conclude that. And on the next page, we would like to show the new babies coming up. The production of New Puma Gen-E and E-Courier. They all started at Craiova plant. So with this action, in fact, we are converting our entire product lineup, it's powertrain into all necessary versions, including the electric versions being available to the market. So having said this, I think next up will be the financial results, the details of them. I will leave the floor to Unal. Please Unal.

Okay. Hello, and welcome all. Looking at our 2024 financials. I'll now start with the highlights and I'll start with revenue. We have a similar value parallel to the previous year, compared to previous year's level, despite 8% volume increase. And of course, previous years, as we all know, is because of inflation accounting are indexed to 2024 year-end purchasing power and having an increase in the total volume and parallel level of revenue with the index numbers [ I ask few metrics ] question. So I would like to explain the reasons behind that. And the main reasons can be counted as, first the mix of sales, mainly having lower truck sales and 2-Ton sales, which are more expensive vehicles compared to other vehicle lineups. But more important than that, in fact, much more important than that much lower Turkish lira depreciation against euro, which is 13% in 2024 full year compared to inflation increase which is 44.4%. As you know, our revenue was TRY 412 billion by the end of last year with 2023 year-end purchasing power, and this is indexed by inflation amount of that is 44.4%. However, almost 80% of our revenue is based on euro terms, which, as I said, increased only 13% throughout the year. If we look at the EBITDA, our EBITDA also decreased from TRY 73.2 billion to TRY 42.7 billion, and EBITDA, excluding other items, decreased from TRY 62.6 billion to TRY 42.9 billion. Main reasons behind these decreases are slightly lower domestic sales and lower pricing capability because of increased competition. Increasing export share in our overall business, 2024 export share is 77%, whereas 2023 was 73%. Continuation of strong Turkish lira versus euro, I'll explain this in a more detailed way in the coming sections and lower Ford truck sales in domestic and international markets, which had a very significant profit margin last year. In parallel to EBITDA, operating profit also decreased year-over-year by 54% to TRY 29 million. Reason of higher decrease in operating profit is basically this year, we couldn't enjoy as much good news coming from exchange moment as we had seen last year as I explained a couple of minutes ago again. Last year, euro rate appreciated by throughout the year, all year in 2023, 63%, whereas this appreciation was around 13% this year. Because significant part of our business is export, as I said, around 80%, 77% this year. Euro appreciation helps us in terms of export profits and profitability, which did last year, but not much this year. Looking at -- looking in more detail, we see that last year, we had around TRY 11.7 billion of net FX income due to trade receivables and payables whereas this year, we have only TRY 2.9 billion, that's pure exchange movement impact. And when we come to the PBT and PAT, decreases versus last year are lower compared to operating profit by 46% and 45%, respectively. We continue to have monetary gain in PBT because of our, as you know, high monetary liability position, as we discussed in our previous calls in the balance sheet, almost same level as we had last year. And in terms of PAT, we continue our investments subject to incentives, which derives a good level of deferred tax income. And this year, we also don't have earthquake tax impact, which was a one-off item last year. If we move to the next page, looking at our margins, both full year versus same quarter of last year. We see decreasing margins other than EBITDA, excluding other items, which is better than fourth quarter of last year. Our full year EBITDA margin is 7.2%, down by 5.1% versus last year. Operating margin is 4.9%, down by 5.8% versus last year. PBT margin is 6.2% which is down by 5.3% compared to last year. In our third quarter call, we mentioned about normalization of our margins, and we discussed about stabilization of margins around quarter 3 levels. However, although we had a good quarter for this year in terms of sales volume as we already talked about, macroeconomic environment especially exchange movement were significantly against us. And as I mentioned a couple of minutes ago again, full year 2024 Turkish lira depreciation against euro was only 13%. However, looking at quarter 4 TL appreciated by 3.4% in this year. On top of that, within this good operational performance and high sales volume, we managed to clear our most aged inventory and ended the year with a very low finished goods inventory, which is very good for us in terms of balance sheet. However, because of high aged sales that hurt our profitability because of the inflation indexation costs that are within those aged vehicles costs. So these are cleared in quarter 4 of this year. Forward-looking this would be a positive impact in our financials. And our EBITDA per vehicle came to be at EUR 1,758 which was EUR 2,554 last year. And quarter 4 EBITDA per vehicle, on the other hand, is very similar to the same quarter of last year by EUR 1,199, last year was EUR 1,213. If we move to next page. This slide is here for our investor presentation, but I already talked about almost all of the line items here. Very shortly, I can mention here that our cost of goods sold is increasing year-over-year whereas our revenue is staying in parallel to previous years. Because all these numbers are indexed with inflation, our revenue is not increasing as much as the inflation rate this year, as I explained, most of our revenue base is in euro terms and euro clearly increases much lower than inflation. On top of the domestic market profitability is significantly lower than last year, as we discussed in almost all of our meetings this year. 2023 was a very exceptional year in terms of Turkish domestic market profitability in a positive way, and it has been normalized through out this year. In the next page, we see that our production volume is 7% higher than last year and higher in quarter 4 of this year by 20% versus same quarter of last year. Cost of production in terms of raw materials is a little lower, almost same as previous year in real terms. In the previous slides I mentioned about euro-TL movement. We can see here as well in the below left-hand side below section, 13% TL depreciation in this year, whereas that was 63% last year and compared to inflation, it's really very important in terms of our profitability. And this has a big deterioration impact, of course, for us. Looking at interest rates. On the other hand, that shows the cost of acquisition and cost of holding a vehicle increased significantly compared to last year. Next slide. We already talked about sales volumes and market share. So I'll skip that one. Slide 21 that's the balance sheet. It's healthy as it was always. So parallel to the EBITDA generation and because of the same reasons, mainly our net cash from operating activities is lower than previous year. However, better than first half of this year and improving with a good recovery for us. And we end 2024 with cash and cash equivalents level of TRY 22.3 million. Next slide. Regarding our financial indicators, our total financial debt increased by 13% year-over-year since we continue our investments as Gul Hanim already mentioned, we are investing in our new models. And in parallel net debt over EBITDA ratio is realized to be at 2.38 times by the end of 2024. Our covenant is we always tell that our covenant is 3.5x. So we are still well below our covenant levels. Looking at net working capital cycle, we have 28 days of net working capital days this year which is 13 days higher than 2023. However, as we mentioned in our quarter 3 earnings call, we improved our net working capital in quarter 4 compared to quarter 3 and early quarters of this year. And that is one of the most important focus areas for us in 2025 as well. And last data I will touch is the short position we have by the end of 2024, which is around [ TRY 3 billion ] after cash flow hedge and natural hedge, which is much lower compared to last year at a manageable level. So I will leave the word to Gul Hanim again for 2025 guidance.

Thank you very much, Unal. Thanks a lot. Over here, looking into 2025, we have included several other line points -- data points into our guidance. And if I start with domestic volume, in fact, for 2025, we are expecting a reduction in overall market, a slight reduction, the general GDP expectation, the general slowdown in the market. We have an expectation for that. That's why the industry in 2024 was almost 1,300. For 2025, we expect it to be around 950,000 to 1,050,000 units. And within that -- out of that, the revision for the -- our performance in the retail domestic sales, we expect it to be in the range of 90,000 to 100,000 levels. For the export side, the export sales, wholesale volume and overall production, thanks to our completion in the overall capacity and product launches. The involvement of the partner into the -- our production scheme. In fact, you are seeing an increase over there. But as I explained in several earlier talks, we will not be giving out those values in separate form, we will be referring to 1-Ton production going forward. I'd like to make this as a disclaimer. So for the export volume out of Turkey, we are expecting to reach 410,000 to 440,000 levels, Out of Romania, our expectation is something between 200,000 to 220,000. And with the wholesale volume also including the import vehicles that we sell in our operations, we target to reach a range in between 700, 000 to 760,000 units. Total production volume will be around 700,000 to 750,000. And the CapEx investment period is -- I would say it is continuing. In fact, with regards to the overall launches, the most difficult and the most breakthrough launches, I would say, they are complete. But because of some of the waves and the actions regarding our vehicles, there will be some investments going on. For that reason, the overall 6% ] CapEx investment, we expect to be in the range of EUR 750 million to EUR 850 million. For the revenue growth, in fact we expect a high single-digit increase in our revenue makeup. And we expect the EBITDA margin to be in between 7% to 8%. So this is how we view the upcoming years. The 2024 has been a challenging one regarding the macroeconomic environment. In fact, you must have heard this from most of the exporters, for an exporter life, it wasn't easy. When it comes to Ford Otosan, especially for the physicals, the physical launches, the timely delivery of the vehicles, that was also a big challenge for us, but we believe we managed to get out of them in a successful manner. Some of the macroeconomic difficulties we expect to continue in 2025, maybe the significance of it might be slightly less than 2024. Those -- the differences between the exchange movements and inflation movements that Unal has explained, we expect that to be slightly better. However, we are also expecting some level of demand come down into these views. And thanks to our fulfillment of the overall 1-Ton project investment, we will not be seeing that. In fact, we will be seeing a step function increase in our production and wholesales. However, with a word of caution, I would like to state that still 2025 is a year that most of the exporters will need to be careful and act cautiously. So having said this, I think we reached the end of our presentation. Let's open it up for your questions and comments, please.

The first question is from the line of Kilickiran, Hanzade with JPMorgan.

I have a few questions on your guidance. I mean, it looks like that you are forecasting a big boost in profitability when compared to the fourth quarter, I mean, even with growth still coming from exports. So I'm trying to understand what is really different in 2025 that will continue to support this outlook. Can you please explain it? I can understand that you don't see -- expect that much change on a year-on-year perspective, but Q4 was quite low. So I'm trying to understand what is driving this pickup. The second one is that, can you please provide a bit more detail on your CapEx guidance. I mean, what is included in product-related investments this year? Actually, we have already completed the capacity expansion. So I'm trying to understand what is next year. And the third is about your cash flow. So do you plan to take your working capital days, I mean case cycle back to around 15 days from the current 28 days?

Thank you very much, Hanzade. Let me start and then for maybe further details, I will let also Unal, Bahar also comment on that one. So in fact, when we -- Unal mentioned about it a little bit at the end of the year, with the completion of these important launches while we were waiting for the okay to buy, okay to sell of those actions, in fact, we had accumulated some stock in our inventory. However, we were able to manage them, clear them in a good way so we attained positive movement trend. We are expecting that to continue. And likewise, while all of these actions were going on, of course, the macroeconomic factors didn't support us. However, we have placed in an important work force together with our Ford colleagues, there is going to be enhanced activity regarding the cost effect. So in our projection, more innovative actions and better cost management is going to be in place, plus with the launch of the vehicles, the investment recovery element of the new sections will also be coming into play. So those will be supporting us. With regards to the volume, of course, the volume shift will be towards more exports that all of these actions are making us a full export company. In the year 2025, the ramp-up period of several other waves, the waves, the derivatives we had seen in 2024, I would say slightly easier, simpler versions of those waves will continue because both our own commercial vehicles, the 1-Ton vehicles are very complex, high derivative vehicles. Likewise, the partner-related volumes are as such. In order to maintain their healthy delivery, healthy launch with good quality with no issue on the end of Ford side. We are dividing them into bundles and waves. So those actions will be continuing. And maybe you might remember on an earlier talk, we had said that some of the changes in the calendarization of the spending because of either the deferrals or some real actual savings. Some -- the initial guidance we had provided for 2024. In fact, it happened less than originally reflected. Now some of that action is going into 2025, plus the remaining waves base of the already identified, already notified projects will continue in the 2025. The general investments regarding the overall maintenance projects, and also some building infrastructure-related setup is included in 2025 view. I would say the key event, key change would be investment recovery element of those actions launched in the year will be coming into the game with some enhanced cost reduction. However, having said this, we are also cautious in the exchange environment. Unal very clearly explained that export side of the business is going to be affected very much from the exchange movements. And in the domestic area, the inflation -- anticipated inflation will be much smaller than year 2024, but still some sizable inflation, maybe it will be around 27%, 28%. We have heard from Fatih Karahan, he updated his view once the January inflation was announced as 5%. So over there, there is going to be still some inflation. The gap between the inflation change and the euro-TL movement, we are expecting that gap to be a little bit smaller than what we have seen in year 2024. So those would be the key things that I would like to mention. If I left anything out Unal, Bahar, you can comment also.

You explained very clearly, Gul Hanim. Just, I mean, you've already mentioned, but what was outlined in quarter 4, Hanzade, compared to other quarters of this year was the 3.4% [indiscernible] appreciation rather than depreciation. So for the forward-looking our plans are -- there will be, as Gul Hanim mentioned, not maybe as much as inflation, but the parallel movement of euro-TL rate. So that will be important for next year 2025 (sic) [ 2026 ].

Thank you Unal and Gul Hanim. I just want to make a follow-up about this investment recovery, I mean, item. Is this the one that you had previously talked about in Romania, so with the completion of investments in Romania and the export contracts are normalized to Otosan levels now?

The Romania investments, what we do for the Courier, what we do for Puma, yes, they are coming into play. But also, likewise, the 1-Ton project, the 1-Ton projects that we conduct in Turkey their recovery period with inclusion of the new partner vehicles that will also come into play. So that is going to be an important difference, I would say, not just the volume. Of course, the volume is acting as a step function, but it's investment recoveries also.

All right. Okay. And what about the working capital question on the cash cycle?

For the working capital, now that the big chunk of that inventory problem has been resolved. In fact, we are expecting to have a better view over there. And because of these macroeconomic pressures that we are having as an exporter. In fact, there has been internal targets to improve the days for both the receivables, payables and inventory. Out of that, we are expecting to reach a better enhanced level of working capital.

Maybe about what I can add also is, Hanzade, Gul Hanim allow me. The question was whether we were able to improve by -- to 15 days, I mean, like we had in 2023. We don't have guidance on that. We have plans to improve, but it's good to have in mind that we will be producing more BEV vehicles, which has more inventory days. So more -- it will improve, but not as much as 2023 levels.

The next question is from the line of Bystrova, Evgeniya with Barclays.

Yes. I just have one quick question. What are your plans in terms of maybe debt management? Do you plan to take any actions this year? I mean it seems that your CapEx will stay elevated this year. So I was just wondering if you have any plans to issue another bond or any -- to take any other actions?

Thank you very much. Yes, you are right. In fact, we are still in the heavy CapEx period. So we are, in fact, utilizing all sources of funds raising for a diversified portfolio with making use of all options at the best possible cost level. That's why our portfolio over there is wide, and we are looking into our options. Depending on the needs, like as I explained, we could come back to the market. Over here, I'm not giving an essential date or a full guidance for that one. But we are looking and we are thinking quite seriously and positively about the bond market also. Over there with the existence with now tapping into the fixed income levels, we have also understood the structure over there. And having issued a very successful eurobond in April of this year, we have benefited from that in the cost structure of our debt portfolio. That's why we could come back and while we are doing our actions, the cash management, we are paying, I would say, a careful view at paying attention to our net debt over EBITDA values. We now mentioned about the covenants being capped at 3.5x, that's the hard cap. But in our view, we are also paying attention not to exceed 2.5x levels. There could be times that we could be going beyond that level, but we will not be staying over there for long. And depending on the needs, yes, we could tap into the bond market once again.

Thank you. The next question is from the line of [ Campos, Gustavo ] with Jefferies.

Hello, can you hear me?

Yes.

All right. And yes, I just had a few questions from my side. If you could please first like elaborate, I'm making some simple calculations here on your guidance and considering your capital structure at the moment, it seems like you will likely be free cash flow negative for 2025. Is that -- is there like an expectation for this to improve in 2026 with perhaps like reduction in CapEx? And how do you see your net leverage here in -- towards the end of the year? That would be my first question.

Yes. In fact, by the end of 2025 and 2026, we will be pretty much complete with out heavy CapEx period. Over the course of this time, we started our electrification. We started our capacity enhancement projects. You will remember, we had acquired the Craiova plants from Ford Motor Company, and we have made its payments -- the payment installments for those actions. So pretty much by 2026, this view, this graph will taper down. So of course, in an automotive environment, the auto business is a cyclic business. Your commercial vehicles have a longer life cycle than passenger vehicles. But still, from 8 to 10 years of cycle life, you should expect a facelift. It could be a measure, it could be totally new generation vehicle. But thinking that -- looking back what we have done, we have acquired a new plant and we have gone into the next-generation build of many vehicles together with the strategic partnership of Ford Motor Company because Ford also wanted to renew its product portfolio in the commercial vehicle space and make a very big involvement, a very big success in the Ford Pro area. So having conducted that, it is not likely to go into a cycle of this size of investments very quickly. However, there will be some cyclic actions that we will be pursuing together with our partner Ford's cycle plan needs and plans. So -- because of the economic factors, we tried to explain, the macroeconomic conditions and the suppression of the euro, the Turkish lira being kind of the Ministry doesn't agree with this comment, but we think Turkish lira is a little bit overvalued over here. So those are putting a strain on our top line potential. And in the past, in fact, our operating cash flow was mostly enough to cover our CapExes. In this environment, because the top line has been a little bit suppressed and the CapEx period being real huge, this is a significant investment. Investment significant transformation. For this time period, the operating cash flow hasn't been enough to cover that. However, going forward, with all these important launches coming in, their investment recovery is coming in. And with the synergies, the economies of scale, the efficiencies and innovation we put into these actions, we expect it to come to healthier levels. What I can say, maybe 2023 is extraordinary. We will not be seeing that. As an overall business decision, we chose to be a mass volume exporters. We are the partner of Ford in that regard. That's why maybe earlier comparator data will not be that appropriate to check. However, this will certainly come back to those -- to the healthy levels. In fact, this is the reason why we are doing the investment. So by 2026, we should be seeing that CapEx come down. And the financial view on the leverage and the cash-related ratios to be much, much healthier. I hope this answers your question.

Yes. It broadly does. So CapEx is expected to decrease especially like after 2026, right, and not during 2026 as you were. Okay. Okay. Yes. And your net leverage is around 2.4 now. Where do you see it trending into 2025? Like do you expect a peak in 2025? Or like given like the hefty CapEx, it could continue to increase?

I think the most appropriate answer will be, we will be dynamically monitoring it. And for the covenant level, like I provided the internal anchor we are using in how we manage our cash situation and borrowing. We will keep on following that. The 2.5x will mostly be protected. We are not envisaging a view that we will be staying above that level for long.