Gestamp Automoción, S.A. (GEST) Earnings Call Transcript & Summary

Good evening, and thank you very much all of you for taking the time to attend Gestamp Full Year 2024 Results Presentation in this very busy afternoon for you. I am Ana Fuentes, M&A and IR Director. And before proceeding, let me refer you to the disclaimer on Slide #2 of this presentation that has been posted in our website and will set out the legal framework under which this presentation must be considered. The conference call will be led by our Executive Chairman, Mr. Francisco Riberas; and our CFO, Mr. Ignacio Mosquera. As usual, at the end of the conference, we will open up for a Q&A session. Now please let me turn the call to our Executive Chairman.

Thank you, Ana, and good afternoon, and thanks for attending this call in which we will be presenting our 2024 results. Moving to the Slide #4. Our group has delivered quite good results in 2024 in a very difficult environment for the auto industry. In terms of revenues, we have been able to reach EUR 12 billion, outperforming the market by 4.6%. In 2024, we have generated EUR 1,319 million EBITDA, excluding the Fenix plan expenses, which means an 11% EBITDA margin with a positive free cash flow ending up the year with 1.6x debt-to-EBITDA leverage position and working, of course, very hard in the Fenix plan, which is in track to reach the profitability target already committed. In 2024, the automotive market has suffered from volatility and also lack of growth. In fact, during the year, the data forecast has changed a lot, moving from an expected growth that we had expected in May to the final minus 1% decrease figures. The total light vehicle manufacturing in 2024 has been 89.5 million units, which means 1 million less than the volumes in 2023, in line with 2019 and 6% behind 2017 volumes. As mentioned, in these different difficult market conditions, Gestamp has been able to meet the updated guidance with a 4.6% outperformance of the market in terms of revenues with an EBITDA margin, which is 28 basis points below 2021 in the auto business with the scrap increasing its EBITDA margin even with lower sales. And also in 2024, we have generated EUR 134 million free cash flow with positive evolution in the fourth quarter and ending the year with a leverage at 1.6x debt to EBITDA. 2024 has been another year of consolidation of the Gestamp equity story. Comparing with the 2024 results with the ones we had in 2017 at the time of the IPO, it's clear that we have done a good performance in terms of volumes, profitability and our group has suffered a big transformation. And this good performance in this period of time, we can see it in terms of revenues, where we have been able to increase from EUR 96 per vehicle manufactured in 2017 to EUR 146 per vehicle manufactured in 2024. In terms of EBITDA, we have moved from EUR 11 per vehicle manufactured in '17 to EUR 16 EBITDA per vehicle manufactured in 2024 and reinforcing our balance sheet with a focus on the free cash flow, allowing to move our leverage from 2.3x in 2017 to 1.6x in 2024. Moving to Slide 8. In terms of sales at FX constant, we have been able to outperform the market as already stated by 4.6%. We had a clear outperformance in a difficult market like China or in Asia. And also, we have done a very good outperformance in Mercosur and Eastern Europe. In North America, we have been more or less in line with the market, and we had a worse performance in our Western Europe operations due to the weak performance of some specific products. In terms of the EV market, we have seen a slower than projected EV production throughout the year in the different geographical areas, especially in NAFTA and also in Western Europe. In fact, in the beginning of the year, it was expected a total 20 million units manufactured in 2024, and we have ended up the year with 18.7 million units. In fact, if we just consider this manufacturing of EVs in Western Europe and NAFTA, it was expected in the beginning of the year to produce 5 million units and it turned out to be 3.7 million. So basically, it's been an increase in the manufacturing on EV vehicles in 2024 compared with 2023, but it has been a growth in China of 3.4 million units and a decrease between NAFTA and Western Europe of 300,000 units. In terms of the sales of Gestamp, in this environment, our EV-related sales in 2024 has amounted around 20% of our total sales in line with the market. This has been the first year of the Fenix plan with a clear priority for us in order to be able to stabilize the bad performing plant and also to be able to push very hard to recover margin by commercial and supplier negotiation. We have, in this first year of the plan, a very positive outcome because with lower sales, especially in the second half of the year, at the end of the day, reaching EUR 2.4 billion, we have been able to slightly increase our EBITDA margin from 6.7% to 7%. And of course, in this first year of the plan, we have incurred EUR 25 million expenses, 42% of the total plan expenses, but only EUR 6 million in terms of the CapEx. Again, good results, already good ones, improving clearly the performance of some of our plants, very good outcome of the different negotiations with customers and suppliers and starting to build a very new and renewed strong and solid team in our North American operations and with a very good visibility of what is going to happen in 2025 and 2026. Referring to our scrap division, the performance of our operations have been really good in also a very challenging scenario for the scrap business. In fact, we have different lower volumes at the world level and also the scrap prices in the global market very reduced from the ones that we had in 2023 with a special impact in prices in U.S., but also in China. In that environment, scrap revenues in 2024 has been reduced from EUR 626 million to EUR 574 million by 8%, but the results of scrap have improved substantially with EBIT moving from EUR 37.6 million in 2023 to EUR 42.1 million in 2024, a 7.3% EBIT margin. And with this, now I hand it over to Ignacio Mosquera.

Thank you, Paco, and good afternoon to everyone. Moving to Slide 13. We can have a closer look to our financial performance in 2024. In 2024, we have reached revenues of EUR 12.01 billion, which entails a 2.2% decrease when compared to the EUR 12.274 billion from 2023. In terms of EBITDA, we have generated EUR 1.294 billion in 2024, meaning a 10.8% margin. Excluding Fenix impact, EBITDA in absolute terms would amount to EUR 1.319 billion, therefore, an EBITDA margin of 11%. As a result of the nominal EBITDA drop and higher amortizations, reported EBIT decreased by 14.4% year-on-year to EUR 582 million with an EBIT margin of 4.9% or 5.1% excluding Fenix impact. As Paco already explained, Fenix plan aimed at restructuring our NAFTA operations has had a $25 million impact in our P&L and a $6 million impact in CapEx for the entire year. Net income in the year has been EUR 188 million that compares to the $281 million reported in 2023. Mainly due to a lower year-on-year EBITDA in absolute terms, increase of D&A levels compared to last year and higher minority interest, partially compensated by better financial results due to a lower exchange impact in 2024. Net debt, excluding Fenix impact, has closed the year almost flat compared to 2023 and increased by close to EUR 39 million to EUR 2.097 billion on a reported basis. Regarding free cash flow, we have achieved another year of positive generation, reaching EUR 134 million in 2024, excluding the extraordinary impacts of the Fenix plan, $103 million as reported. To sum up, we continue to demonstrate our ability to perform strongly and maintain our balance sheet discipline in a challenging market environment with a difficult year-on-year comparable due to the extraordinary growth of 2023. If we now move to Slide 14, we can see the performance by region on a year-on-year basis. Looking at each region in detail, revenues in Western Europe have decreased by 9.7% year-on-year in 2024 to around EUR 4.2 billion. Performance in the region has been strongly affected mainly by volume pressure. In terms of EBITDA, it reached almost EUR 480 million, and EBITDA margin stood at 11.4% in the period, down from the 11.6% reported in 2023. Volumes drop in the period has led that despite the lack of operating leverage, we have managed to maintain profitability levels close to last year. In Eastern Europe, the performance in 2024 has been solid, proving again our strong positioning in the region. On a reported basis, during 2024, revenues have grown year-on-year by 11% up to levels of EUR 1.902 billion. And EBITDA levels have increased by 2.2% to EUR 254 million, partially impacted by currency fluctuations in the year. EBITDA margin of 13.3% is below the 14.5% reported last year, mainly due to the inflationary pressures and project mix volatility observed in the first half of the year. In fact, in the fourth quarter, EBITDA margin improved to levels of 14.5%, allowing to reverse part of the first half weaker performance. In NAFTA, Fenix plan continues to show signs of improvement in the underlying operations with a very good EBITDA margin evolution in 2024. Our revenues have decreased by 2.8% year-on-year, while EBITDA has slightly increased by 1.9% if we exclude Fenix impact of $25 million in the full year '24. This slightly higher EBITDA in absolute terms leads to an EBITDA margin of 7%, improving last year profitability and also surpassing the target we had set of flat margin evolution for '24. As you all know, turning around our operations in NAFTA to improve our market positioning and profitability is at the top of our priorities. In Mercosur, the year '24 has been strongly marked by ForEx evolution in Argentina and floods in Brazil during the month of May. This situation, combined with some restructuring executed has led to EBITDA decrease of 16.6% and an EBITDA margin of 9.4%. On the other hand, revenues had a positive performance of 3.1% in 2024, driven by a very strong last quarter growth. This positive comparable is mainly affected by the extraordinary peso devaluation that Argentina suffered in Q4 '23. In Asia, our performance continues to evolve very positively. In the period, reported revenues in this region have seen a strong growth, reaching EUR 1.976 billion in a complex and very competitive market. As we have been seeing in the recent quarters, our approach of focusing on premium products with differential technologies is allowing us to gain good quality market share in a region where there is a strong competition in the EV transition. EBITDA grew by 4% compared to 2023, maintaining previous period strong EBITDA margin of 14% and remaining at the region with the best profitability levels in '24. We keep on working to gain position in this region with a strong organic and profitable growth. Finally, scrap has seen revenues decreasing by 8.3% year-on-year to $574 million as a result of the sustained decline in scrap prices that Paco mentioned before. Nevertheless, as explained in the previous section, we have managed to improve our profitability with an EBITDA growth of 11.2% year-on-year and a strong margin improvement, reaching 9% in '24. Overall, we have seen that our unique business model and geographic diversification has supported and driven our performance in a year marked by volumes volatility and lack of growth. Turning to Slide 15. We see that we ended 2024 with a net debt of $2.97 billion, which is $39 million above the $2.058 billion reported in December '23. This $39 million increase includes dividend payments of $128 million and $40 million of minorities acquisitions, M&A, divestments and equity contributions. As a reminder, the main impact is due to the repurchase of Mitsui stake in North America at the end of May 2024. During the year, the company has generated a positive free cash flow of $134 million, excluding the extraordinary Fenix costs, achieving the updated guidance for 2024. As we explained in the 9 months results presentation, we have not reached the $200 million initially targeted in February 2024, mainly due to lower volumes production and negative currency fluctuation in the year. Moving to Slide 16, we can see in detail working capital evolution since 2022. On a quarter-on-quarter basis and this leads to our traditional seasonality during the year. Working capital extraordinary impact in the third quarter has been reversed in mainly by a normalization of tooling collection and lower inventory levels in the last quarter. We ended 2024 at normalized levels with similar cumulative impact in free cash flow as past years, consistent with our working capital strategy. As a result of this, we move to Slide #17, where we see that we ended 2024 with an almost flat net financial debt of EUR 2.066 billion if we exclude Fenix plan impact, which impacts a net debt-to-EBITDA ratio of 1.6x. Since IFRS implementation, we have been able to maintain almost the lowest level of net debt. Leverage ratio, despite being the second lowest ratio for a full year period since the IPO has increased versus 2023, mainly by a lower EBITDA in absolute terms due to the lower production volumes. Gestamp maintains a solid liquidity position without substantial maturities in the short term. Our priority is to preserve our financial strength, and we remain disciplined over leverage in absolute and relative terms. Finally, we present in Slide 18, our latest business KPI, the return on capital employed. In 2024, our return on capital employed has temporarily impacted by tough market conditions if we compare with last year. 2023 was an extraordinary year. And as we said at the time, we have had some short-term dilution in 2024. Even so, we have managed to reach 15% levels, improving by 100 bps since 2022 when we first released our new return on capital employed API. As we have made ourselves clear, we aim at remaining disciplined on CapEx investments and improve profitability. Our long-term strategy is focused on generating value for our shareholders. Thank you all. And now I hand over the presentation to Paco for the outlook and closing remarks.

Thank you, Ignacio. So, in terms of 2025, we are now forecasting a stabilization of the global light vehicle manufacturing at similar level to the ones of 2024 and 2019. So even if there is a lot of volatility now, we are expecting manufacturing volumes to remain stable at around EUR 89.5 million in 2025, quite flat again year-on-year. So, with still big uncertainty around the speed of transition on EVs and of course, with different market dynamics in each of the main regions of the world. Moving to Slide 21. In Europe, we see now another year of decline in manufacturing, especially in Western European countries, more than in Eastern ones. Overall, die vapor manufacturing volumes for 2025, clearly below the ones we had in 2019. But on the other hand, for China, we are forecasting a 2% increase of manufacturing from 2024, reaching 6 million units more in 2025 than the ones we had in 2019. For rest of regions, we are forecasting a slight decrease of around 2% in North American region and a good performance in Mercosur and also in India. So different market dynamics in each region, but also, it's going to be a lot of uncertainty during the year coming from areas like the new tariffs, also about unclear regulation on EV transition, about news that could come from new OEMs going global or a potential market consolidation. For 2025, clearly, we are convinced that we are in within a context of high uncertainty, volatility, limited market growth. So, for us, clearly, we need to return to our long-established business fundamentals, looking for further value create opportunities. And our focus is going to be in the right execution of our EUR 51 billion backlog in implementing every single cost initiative in order to enhance our profitability, being very selective in our CapEx policy and of course, reserving as a priority, our financial discipline. So, in more detail in Slide #23, we have ended the 2024 year with EUR 51.1 billion backlog, which means a backlog that is covering more than 90% of the expected revenues for the next 5 years. And the priority, as mentioned, is to try any kind of short-term initiatives in order to ensure and enhance profitability. All kind of cost control measures at all different levels at corporate at division at the plant levels, reevaluating our installed capacity in order to look for any kind of inefficiency or resizing opportunities looking for further flexibility measures in order to be able to cope with the volatility and of course, very much focused in implementing the Fenix plan. And in the other hand, the idea is to preserve a strong balance sheet. The idea, of course, is clearly to have a well-balanced equilibrium between growth, profitability and CapEx with a revisited and selective CapEx strategy very focused on return on investment, again, very focused in efficiency in order to do a good execution of our backlog and preserving our efficiency in terms of the working capital management. So, focus on generating positive free cash flow and of course, a priority to keep on strengthening our balance sheet profile. So, for this, in terms of guidance for 2025, we are committed to fulfill the guidance and to reinforce our position. So, in terms of revenues, we are guiding for a low single-digit range outperformance in terms of revenues for in terms of auto business profitability to have our EBITDA margin in line or a slight improvement compared with 2024 for scrap, we are expecting a year in line with 2024, which was a very good year in scrap. And in terms of leverage and free cash flow to be in the range of what we have already done in 2024. To come back for Fenix in 2025, of course, we are keeping all the pressure in order to have this plan, which is absolutely basic in our long-term strategy. In terms of market situation, we are not comfortable, but we are already assuming that it's not going to be easy with a lot of uncertainties around the speed of the EV transition and probably a lot of noise around potential new tariffs and commercial regulation. Our focus is going to keep on being to work in the 3 targeted intervention plans with our partner programs and also to be very focused in this action plan with the key pillars in operations, in purchasing and also in negotiations with customers and also people. And of course, we keep on working in the full restructuring of 3 plants in order to be able to rebalance our footprint. And of course, long-term priority to build a very solid team for our North American operations. So, we have already commented that in 2024, we have already been able to increase our EBITDA margin up to 7%. For 2025, we are expecting to generate in the range of 8% EBITDA margin. moving into 2026, we should be more than 10% as already committed. And for 2027, we expect our North American operational profitability to be in line with the rest of the group. And with the Fenix cost in line with what we have already commented when we started the Fenix plant. So that means that for this year between expenses and CapEx, we have EUR 48 million pending, and we will have only EUR 20 million pending for 2026 between CapEx and expenses. So just to end up, in summary, we are convinced that we have had a good performance in 2024 in a quite difficult scenario in terms of volumes and also in terms of volatility. We had the first year of the Fenix plan. We are convinced that we are in the right track and very much convinced that this plan is going to allow us to achieve all the targets that we communicated 1 year ago. Of course, in 2025, we have a lot of things to do. We understand that the market is going to be quite stable. So, our focus is going to be profitability and of course, preserving our balance sheet with financial discipline. So that's all from my side, and now we are open for your questions.

[Operator Instructions] And our first question comes from the line of Francisco Ruiz from BNP.

I have 3 questions. The first one is in Europe. I mean despite the performance that we have seen in sales, the Q4 number in terms of margin is well above the rest of the quarter. So, I don't know if it's something extraordinary on this figure, which is something like around 30%, if I calculate it right. The second one is on NAFTA. So, if we look at the margin in Q4 for the NAFTA activities are close to 10%, something like around 9 point something, while you are guiding to an 8% for 2025. So, could you explain me the difference and the delta? And last but not least, you have guided for '25 on similar leverage in terms of net debt to EBITDA, assuming a very small increase on EBITDA, that means that your debt is expected to be growing. But taking into account a normalization of the working capital compared to what happened this year, do you think that this is a very conservative assumption?

Thank you for your questions. I think it's true that, as you know, always we have some kind of seasonality in the fourth quarter because we are all year long fighting with some kind of things. Most of the sales are generated at the end of the year. So, we are able to generate the profit at that time. So that's why we have the margin in terms of Europe for the fourth quarter, it was quite a good one. And also, it's true that in the beginning of the year, in Europe, it took some time until we were able to implement some kind of flexibility in our labor. So, we have ended up in a better condition than the one we had in the first part of the year. In terms of NAFTA, it's fair to your question. I think we have been also very successful in the fourth quarter in terms of profitability. But it's also true, as mentioned also for Europe is that we have been able to generate a lot of specific on onetime opportunities in the case of the fourth quarter. So that does not mean that it's extraordinary, but it's opportunity that we should have generated throughout the year. So that means that when we are guiding for 8% for 2025, you should not compare with the profitability we have in the fourth quarter because part of the profitability of the fourth quarter is really coming from the profitability we should have had in the previous quarters. And I think around the leverage -- So, with regards to normalization of normalized working capital, I think that we've generated in the year north of EUR 100 million of improvement of working capital. It's unlikely that those levels are able to be maintained going forward. But we can expect, I think that there are some opportunities that we would be able to pursue in terms of working capital. And leverage, I think that we are aiming at closing the year 2025 at similar levels, taking into account the expected evolution and certain investments that we're going to be doing.

[Operator Instructions] Our next question comes from the line of Alexandre Raverdy from Kepler.

I have 2 quick questions, please. The first one is, could you please come back to the drop in the Mercosur margins in Q4? I'm not sure I understood the comment. And what basically we could expect from here in the next quarters because I think the drop is quite significant. And the second one, obviously, your guidance excludes potential tariffs, but I think USMCA tariffs are likely to be implemented. So, could you give us, please, an idea of the potential net impact on the P&L, assuming they are implemented on a full year basis?

I can take it. Around Mercosur, the margin in 2024 has not been so negative, but it's true that during the fourth quarter, we have decided to have some kind of restructuration actions in the Mercosur in some facilities, especially in Argentina. So, I think, let's say, the normal margin in the quarter has been quite positive. In fact, we suffered a little bit more during the year due to the floods that Ignacio has already commented. But for 2024, the last quarter has done quite well, but we have decided to do this. So, for 2025, we feel quite comfortable about Mercosur volumes and also about the Mercosur EBITDA margin. And concerning the tariffs in U.S., there still is a lot of uncertainty. We have conducted different kind of analysis. We don't see any risk coming out from the potential tariffs on steel or aluminum because we have agreements with our customers. And concerning the impact that could come from U.S. tariffs on Mexico or Canada, there could be that if we -- as you know well, we manufacture in each country for the vehicles that are assembled in this country. So, we don't have a risk of exporting our components to U.S. and to pay these tariffs. The only problem and direct problem could come from lower production in Mexico, but that would mean an increased production in U.S. So today, we are, of course, trying to manage different scenarios, but we don't see any kind of risk, and we don't see any change or variance in the EDIs coming from our customers.

No further questions from the conference call at this time. So, I hand the conference back to the management team. Thank you.

So, thank you for your time today. As usual, the IR team remains at your disposal for any further questions you may have, and hope to speak to you again at least in the next 2 months, thanks.

Okay. Thank you.