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

Good evening and thank you very much for taking the time to attend Gestamp First Quarter 2025 Results Presentation. I'm Ana Fuentes, M&A and IR Director. Before proceeding, let me refer you to the disclaimer on the Slide #2 of this presentation, that has been posted -- sorry, 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 call, we will open up for our Q&A session. Now please let me turn the call to our Executive Chairman.

Thank you, and good afternoon, and thanks for attending this call in which we will be presenting our first quarter results. Moving to the -- so we have been able, even if we have, in the first quarter 2025, we have quite a challenging environment. And this time, we have been able to deliver quite strong positive results. In terms of revenues, we have recorded almost EUR 3 billion, which means a reduction of 0.7% year-on-year in terms of our auto business in FX constant. In terms of EBITDA we have generated EUR 307 million, excluding the Phoenix Plan expenses, which means a 10.3% EBITDA margin, which means a flat profitability year-on-year. And in terms of Phoenix, we are quite satisfied with the performance during this first quarter. We have been able to reach 6.4% EBITDA margin, which means an improvement compared with first quarter 2024 of 187 basis points. So with all this, now we are in a position to reiterate our guidance for the full year 2025. Going to the Slide 5, in terms of the market. The global light vehicle manufacturing during first quarter 2025 has reached an amount of 21.7 million units which means an increase from first quarter 2024 of 1.3%. However, this increase quarter-on-quarter is mainly due to an increase of -- in China of 11.5%, which is offsetting an additional increase or a new decrease in the Western European market of 7% and a decrease in this quarter compared with the quarter 2024 in North America of 5.3%. During this first quarter 2025, Gestamp revenues have underperformed our market by 3.2% at FX constant and mainly because of China. In a weighted basis average Gestamp has outperformed the market by 1.7 percentage points. Gestamp has been able to outperform the market clearly in North America and in Mercosur also in Europe, we have been able to do well because in Eastern Europe have been able to offset and balance the lower sales in Western Europe, and we have underperformed in Asia, mainly because of China, even if our sales in India grows. Our net sales during the first quarter 2025 has amounted to almost EUR 3 billion, which means, as I mentioned before, a 2.2% year-on-year decrease but only EUR 21 million less sales due to organic sales and an impact of EUR 51 million coming from ForEx impact. Our auto business has performed well in terms of profitability during the first quarter of this year with EUR 295 million EBITDA, excluding Phoenix expenses, which means a 10.5% EBITDA margin, in line with the margin we generated in first quarter 2024. Even if in this quarter, we have been impacted by tougher volumes in our key geographies, especially in Europe, our client and geographical diversification has helped us to maintain our profitability and of course, we have been able to react quickly, implement several short-term initiatives, including cost reductions and flexibility and restructuring measures. As mentioned before, in the Phoenix, we are on track during first quarter 2025. And even if volumes in North America especially in U.S. have dropped from the volumes we had in first quarter 2024, we've been able to perform well. In fact, in U.S. the volumes in the first quarter 2025 have dropped compared with first quarter 2024 by 8.3%. In terms of the expenses associated with the Phoenix Plan, we had reported EUR 6.9 million, which is in line which we were expecting and still in terms of CapEx, if we have a limited CapEx impact during this quarter and probably will come in next quarters to come. Overall, we have been able to improve substantially by 187 basis points our EBITDA margin comparing with first quarter 2024 to 2025 that means that in the first quarter 2025, we have already generated 6.4% EBITDA margin. So that means that we are absolutely on track to be able to achieve the 8% EBITDA margin that we have already announced for the full year. And in Slide #10, in terms of Gescrap. We had an environment where the scrap prices at the world level are going down compared with the first quarter 2024, especially in Europe and in China. During this quarter, in Gescrap, we have been able to sell more tons but with a lower price during the quarter, so that means that we have had an impact in terms of a reduction, in terms of our EBIT margin quarter-on-quarter. And I think now I pass it over to Ignacio Mosquera.

Thank you very much, Paco, and good afternoon to everyone. Moving on to Slide 12. We can have a closer look to our financial performance in the first quarter of 2025. As Paco has already explained, Phoenix Plan aimed at restructuring our NAFTA operations has had a EUR 6.9 million impact on our P&L and EUR 1.4 million impact on CapEx for the quarter. And as a reminder, in the first quarter of 2024, we had an impact of EUR 4.4 million on P&L. We have included comparable figures for both periods excluding Phoenix. For the first quarter of 2025, we have reached revenues of EUR 2.983 billion, which entails a 2.2% decrease when compared to the EUR 3.049 billion from Q1 2024. Revenues for the auto business, therefore, excluding Gescrap, our FX constant have been almost flat with a 0.7% decrease year-on-year in Q1 2025 as FX has negatively impacted our result by EUR 51 million. In terms of EBITDA, we have generated EUR 300 million in Q1 2025 meaning a 10.1% margin. Excluding Phoenix Plan impact, EBITDA in absolute terms would amount to EUR 307 million, with an EBITDA margin of 10.3%, preserving the same level of profitability as in Q1 2024. Reported EBIT decreased by 10.7% year-on-year to EUR 120 million with an EBIT margin of 4% as a result of a slightly higher amortizations in the period. Excluding Phoenix impact, it would amount to EUR 127 million or 4.3%. Net income in the quarter has been EUR 27 million, that compares to the EUR 55 million reported in the first quarter of 2024, mainly by higher minority interest and to a lesser extent, a lower year-on-year EBITDA in absolute terms and a slight increase in depreciation and amortization levels compared to last year. Net debt has closed the quarter in EUR 2.219 billion, reducing net debt in EUR 14 million compared to the first quarter of 2024. As for free cash flow, we have a negative free cash flow generation in the quarter due to normal seasonality. However, we remain confident on reaching our full target for the year of generating positive free cash flow in the range of 2024 levels. To sum up, we continue to demonstrate our ability to perform strongly and preserve our profitability and balance sheet discipline in a volatile market environment. If we now turn to Slide 13, 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 6.6% year-on-year, in Q1 2025 to EUR 1.064 billion. Revenue evolution in the region has been strongly affected mainly by volume pressure in the period and to a lesser extent, the fall in raw material prices. In terms of EBITDA, it reached almost EUR 93 million, and EBITDA margin stood at 8.7% in the period, down from the 10.4% reported in the first quarter of 2024. Profitability in the quarter has been impacted mainly by volume drop that led to a limited operating leverage and to a lesser extent, impact from a specific restructuring measures we are taking in the region. In Eastern Europe, the performance in Q1 2025 has been very solid, proving again our strong positioning in the region. On a reported basis, during Q1 2025, revenues have grown year-on-year by 8.5%, up to levels of EUR 508 million and EBITDA levels have increased by 30.5% to EUR 80 million. EBITDA margin of 15.7% in Q1 2025 is above the 13.1% margin reported last year, mainly due to a better project mix and operational leverage. In fact, quarter-on-quarter, EBITDA margin also improves beating the 14.5% levels from the Q4 2024. In NAFTA, Phoenix Plan continues to show signs of improvement in the start of the year with good underlying operations that led to an EBITDA margin improved Q1 2025. Our revenues have decreased 2.8% year-on-year, mainly due to the volumes production performance in the quarter. However, on the other hand, EBITDA has strongly increased by 37.2% if we exclude Phoenix impact of EUR 4.4 million in Q1 2024 and EUR 6.9 million in Q1 2025. This higher EBITDA in absolute terms leads to an EBITDA margin of 6.4% improving last year's profitability in around 190 bps and setting the pace to achieve the target of around 8% EBITDA margin range for 2025. As you all know, turning around the operations in NAFTA to improve our market positioning and profitability is at the top of our priorities. In Mercosur, the first quarter of 2025 has been strongly marked by the ForEx evolution in Brazil and Argentina, leading to revenues almost flat in the period. At FX constant, we grow in the region more than 15% outperforming the market once again. EBITDA levels dropped in the quarter by 16.4% that led to an EBITDA margin of 9.6%. More similar situation to how we ended the second half of the year, mainly due to the restructuring we are undertaking in part of the business in Argentina. In Asia, our performance in the period is mainly impacted by the difficult comparable with 2024, where in the first quarter, we achieved an extraordinary revenue growth of almost 11%. In the first quarter of 2025, reported revenues in this region have reached EUR 469 million in a complex and very competitive market. As we have been mentioning in the recent quarters, our approach continues to be focusing on premium products in the region. EBITDA levels in absolute terms have decreased by 9.4% compared to Q1 2024 and EBITDA margin stood at 14.1% in the period, down from the 15% reported in the first quarter of 2024, although at the same levels as the full year 2024 where we reported a 14% margin. We keep on working to gain positioning in this region with a strong organic and profitable growth. Finally, Gescrap has seen revenues increasing by 4.3% year-on-year to EUR 161 million despite the sustained decline in scrap prices, as Paco mentioned before. Nevertheless, as explained in previous slides, we have suffered a slight decrease in EBITDA in absolute terms by 2.5% that led to a margin of 7.8%. This lower profitability in Gescrap is mainly due to the product mix in the quarter. Overall, we have seen that our unique business model and geographic and global diversification has driven our performance and support our profitability levels in the quarter. Turning to Slide 14. We see that we started 2025 with a net debt of EUR 2.219 billion, which is EUR 122 million above the EUR 2.097 billion reported in December 2024. This EUR 122 million increase includes dividend payment of EUR 28 million and EUR 12 million of minorities acquisitions, M&A and equity contributions and EUR 8 million of ForEx impact in the quarter. From now on, we will exclude the ForEx impact in our reported free cash flow to eliminate the effect either positive or negative. The company has generated a negative free cash flow of EUR 83 million, excluding extraordinary Phoenix cost in the first quarter, negatively impacted by our traditional business seasonality. For 2025, we're committed to meet full year guidance, generating free cash flow in the 2024 range. In fact, we ended the first quarter with a slightly better levels than the reported last year first quarter. Finally, in terms of liquidity, we have closed March with a solid liquidity position of EUR 2.1 billion, which includes total cash balance of EUR 1.3 billion as well as undrawn credit lines on our revolving credit facility. As a result of this, and if we move to the next Slide #15, we ended the first quarter of 2025 with a net financial debt of EUR 2.210 billion if we exclude Phoenix Plan impact, which implies a net debt-to-EBITDA ratio of 1.7x. We have managed to improve our net financial debt, delivering the lowest first quarter level since IFRS 16 implementation and sustaining the same leverage for the quarter as of Q1 2024. Our priority is to preserve our financial strength, and we remain disciplined over leverage in absolute and relative terms. Finally, we present in the Slide #16, our dividend payments in 2025 against 2024 full year net income. A total of EUR 0.10 per share will be distributed in two payments. An interim payment that we have already paid in January 2025 and a complementary dividend approved at today's General Shareholders' Meeting that will be paid in next July. Gestamp maintains a clear shareholder remuneration policy within a stable dividend payout of 30% of reported net profit, in line with the target that was announced on 2023 CMD for the period 2023-2027. The long-term strategy is focused on generating value for our shareholders. Thank you all. Now I hand over the presentation back to Paco for the outlook and final remarks.

Okay. Thank you, Ignacio. So during this first month of the year, U.S. tariffs announcement have created a lot of uncertainty and volatility, so that's why it's difficult right now to estimate the full year volumes. And if we take into consideration, the latest revision by S&P, we are now estimating that it's going to be a reduction in terms of manufacturing of light vehicles in 2025 compared with 2024, 1.6 million units. And also, there is an estimation that the volumes are going to be also reduced for the next years to come. If we focus in 2025, the most important decrease in terms of volumes are going to come from North America market and also in Western Europe. For Gestamp, the direct impact of a tariff increase will be very much limited as we are a global and diversified player. So that means that we have our business model is very local to local so that means that we are manufacturing very close to where the vehicles are assembled. So that means that our export of components to different countries is very limited, and our suppliers are basically local. And in the case that they are not local, we have also a pass-through system that we have agreed with our customers. And also, we have a very much diversified portfolio of customers. We're working in many countries, in 24 countries with most of the OEMs and with many models all over the world. So during this period of uncertainty our group is very much focused in items which are fully under our control. So we try to focus right now in trying to preserve our profitability, trying to be able to keep constant and constructive negotiation and discussion with our customers, implementing all kind of measures in order to control these expenses and cost in our organization and of course, trying to put it in place any kind of measures around flexibility and restructuring as soon as possible. And of course, also trying to increase and maintain our financial profile with a very strict CapEx policy, trying to revise any existing programs. Of course, preserving, I'm very much focused, as Ignacio has explained in the liquidity level and managing our working capital cost. So even if we have tougher market conditions with the existing measures we have in place, we reiterate our guidance for 2025 full year in terms of sales, profitability, free cash flow generation and also leverage and debt. And just to end up, just to summarize, we are convinced that we have started the year with a quite solid start, trying to be able to generate or to keep our EBITDA margin even if lower volumes, of course, prepared for a quick reaction, if we have a further deterioration of the market and of course, trying to be very much focused in our priorities, like in the case of the Phoenix Plan that we have performed quite well in the first quarter and that we are on track to achieve our targets for 2025. And with this now, I now hand it over for your questions.

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

I have three questions. The first one is, when I listen to you, I mean, you've been very pragmatic on your ability to reach this 8% EBITDA margin this year in NAFTA with the Phoenix Plan with the 6.4% that you have announced in this quarter. So I wonder what is the scenario that you are managing because, I mean, if the situation gets worse, probably it's going to be more difficult than this. I mean I would like to know if this 8% is under the current conditions, under current tariffs, et cetera, et cetera. The second question is that during the presentation, Ignacio has commented several cost-cutting measures. I mean, correct me if I'm wrong, but it's Europe and Mercosur. So if you could give us more detail about the impact of the costs here and what's the savings do you expect in these geographies? And last question is a modeling question, which is what we should expect on the minorities for the year?

Okay. Thank you for your questions. I focus on the first one in terms of how we believe that we are going to be able to reach the 8% target in terms of EBITDA profitability for the year '25 in North American region. Of course, last year, we had a challenge in the beginning of the year because we were starting the project. Right now, the project is already running for a full year, and we have very good expectations. We have the teams very much prepared. And in terms of the environment, of course, what is going on right now with the tariffs, we are not expecting at all any kind of problems in our U.S. operations. And even in the case of Mexico, there could be some impact that should be very minor. So I think what we are very focused in the different programs that we have started already last year, and that's why we are focusing in the four levels we mentioned, discussion with customers in terms of prices and conditions, also negotiating more and more with the suppliers. Of course, trying to be able also to consider a different approach in terms of our human resources, and trying to improve the efficiency of our operations overall and of course, also the efficiency of our assets. So overall, to be honest with you, we feel that everything is basically aligned with the expectation we have in the beginning of the year and the kind of uncertainties around the U.S. tariffs should not impact our performance targets for 2025. I think your second question was regarding the kind of OpEx measure that we have -- that we have implemented. I think this is a bunch of different measures we do in every single area in the world. Of course, there are some areas that last year were impacted with some problems, and now we have some room to improve. But in any case, what we are now is sending a clear message to all our divisions, Gestamp time to react quickly. We should not wait for volumes to come back, we should react and we are implementing different measures. In terms of flexibility, as you know, we tend to preserve especially in Europe, a kind of flexibility in terms of non-fixed workforce. So we are using this flexibility in order to be able to react but also we are trying to study and analyze and also already implementing some restructuring measures in some specific areas. For instance, in Europe, in some countries in Europe and also in the area of Mercosur. And maybe...

On your point on the minorities -- the impact on the minorities this quarter has been basically because of the acquisition we did of our participation in North America last year which was basically done around May area in 2024. So basically, if I would model the minorities for the full year 2025 in relation to 2024, it would be more likely to be similar to the second half of 2024 applied to the full year 2025.

The next question comes from the line of Christoph Laskawi from Deutsche Bank.

The first one, just following up on your NAFTA's comments and the 8% margin target. So if I understand it correctly and being cost driven, we should see sequential improvements quarter-by-quarter until Q4 in the run-up to the target, if you could comment on that? And then the second question block on essentially the supply chain and potential impacts from the tariff already. Do you see any disruption in the supply chain or any hiccups that you've encountered since the tariffs have been introduced? And then also on momentum in Western Europe, down 6.6%. Is the run rate essentially unchanged into Q2? Or do we see some sort of improvement with [ call-offs ] stabilizing?

Thank you for your questions. I think in terms of the target we have for North American operations of this 8% is not going to be so linear, because there are some kind of negotiations, for instance with the customers that we have agreed several price negotiations and probably that will be taking place in some specific moment. So it's not going to be so linear, but it's true that we have right now more or less detailed what kind of improvement we are going to have. And part of it is coming also for the improvement of the different operations. I think right now last year, we did a very important improvement in some of the operations. So this year operations are already running well. So when we compare with the quarters of last year, we are going to have a real reasonable improvement. But it's not going to be so linear, but we feel quite sure, quite convinced that this 8% target is going to happen, but not quarter by quarter. If we talk about the supply chain, of course, as you can imagine, all these announcements around tariffs is creating uncertainty in all the supply chain. But to your question, we have not seen any specific disruption in the supply chain so far. What is clear is that customers and suppliers are -- we are all talking, we are all having a lot of conversations together, but there is not a clear definition on any change in the volumes expected for the full year. So I think right now, it's a moment that we need to see, we need to wait and see what is going to happen. And of course, to be ready and to implement all kind of activities and measures that we can do in our different plants. And for Western Europe, it's true that we have suffered many years already in a row that Western Europe volumes have been going down. We now feel that Europe is starting to react. At least we have the action plan coming out from the European Commission. Still, we need to see these volumes going up, and there is not a clear view of what is going to happen and when this reaction is going to come, but we feel that the European Commission is in some extent, prepared to help the demand, the European demand in order to offset potential problems coming out from the implementation of the tariffs and the exports that Europe is usually doing to U.S. So I think we are rather positive about the potential reaction of the European Commission and the way to stimulate the demand here in Europe.

[Operator Instructions] And our next question comes from the line of [indiscernible] from Alantra Equities.

I wanted to know if you could give a bit more detail on your underperformance in Asia beyond what you already said and whether this could be for the whole year. Also, you made some comments recently about your intention to look for alliances or acquisitions in China. I wonder whether you could comment on that. Finally, overall, I was wondering whether the volume decreases that you -- that IHS is forecasting will not have an impact on your operating margins, given that they are expecting a 9% decrease in North America and 6% in Western Europe.

Thank you for the questions. I think we have already presented to you what we are expecting for Asia. It's true that last year, we had a very solid performance in the first quarter and this year we still had a 14% EBITDA margin for the first quarter. It's true that this year, the sales from our Indian operations are growing. So that means that part of the profitability this year is coming more -- a bigger part of the profitability this year is coming from India. And it's also true that we keep a good level of sales in China. That is also true that the competition in the Chinese market is strong and that our teams are working very hard in order to be able to preserve profitability. In any case, the profitability of the last year was quite strong, and we are intending to have the same levels or similar levels of profitability for this year. In terms of what alliances we are doing in terms of potential acquisitions or whatever in China. I think the most important part of what we are doing in China is trying to be able to increase our sales in China for domestic Chinese players but also, we are doing a huge effort in order to be the partner of the Chinese companies when they become global. That means, as you know well that there are many, many different brands in China, but not all of them are going to be able to become global players. And we are natural partners of the biggest of them. Right now, there are 3, 4 ,5 big companies in China, which are starting to become global, opening industrial plants in different areas in the world. We already work with them in China. We have a very solid footprint all over the world, and we are absolutely convinced that we are the natural partner for these Chinese companies when they become global. And then the last question about how we feel about trying to be able to offset the potential decrease in volumes for the year in Europe or in North America. We have a visibility today, which is coming from IHS and when there is demand and the [ EDIs ] from our customers. So the volumes we already know that they are lower. So that's why we are implementing measures. And with this environment, we feel that we can reiterate the guidance that we provided by the end of February. Of course, we don't know how the scenario is going to be, maybe it could be better or worse, but we are prepared to react. And the important message to all the teams, all the members of our teams is that we need to react quickly because we are now in a special moment and it's time to take decisions very soon.

The next question comes from the line of Jose Maria Asumendi from JPMorgan.

Paco, a few questions, please. I was wondering if you could give us an update with regards to the process of winning additional business with Chinese OEMs in Europe and the opportunity you have there to expand the business with them, linking this with your previous comment of following the Chinese across the world. Second, can you comment, please, on CapEx? How should we think about it maybe first half, second half of the year or for the full year. And then three, maybe also linked to the first question, I saw some comments from Patricia on the Shanghai Auto Show. Can you give us an update on impressions from the Shanghai Auto Show product exposition you did there? Any reaction you got from the clients, any additional business opportunities you could share with us.

Okay. Thank you for questions. So I think I could take the China one. And maybe, Ignacio, you can help me with the CapEx. So as you know, we usually don't like to give too many details about what we are doing with the different customers. But I think it's quite known that there are already some Chinese players starting operations everywhere in the world. We are a natural partner everywhere in the world footprint but especially in Europe. In Europe big players like Cherry that is already announced, the new plant they started in Barcelona or new plants potentially in Turkey. In the case of the BYD, we are also a natural partner of Chile from years and also there is [indiscernible] group that are very active. We are already a very important supplier of them in China. In some cases, we have been working and we have been already receiving request for quotation for some of them for the potential programs and we feel we have a very good position in order to be able to become the natural partner of them, especially in Europe, not only in Europe because we have also supported and request for quotations in other areas, especially in Latin America. And regarding the Shanghai Auto Show, it's true that we were there 2 weeks ago. And is -- I think we all know that right now, the most important auto show in the world is happening in Shanghai. We saw a lot of new models coming out from domestic Chinese brands, but also from European or American brands. A lot of different brands, models and innovations. And so that's why we decided this year, as we have done in other years, but this year more than ever to prepare a booth with a lot of our innovations, and we have had a lot of visit from different customer. So we feel like we have done a very good job. We are optimistic about how this is going to impact in the future in our sales in China and of course in our sales with the Chinese OEMs alongside from China. And maybe on CapEx, Ignacio?

Sure. Thank you. Jose, as you may recall, we are not providing specific guidance on CapEx as we are focusing on leverage, and we provided guidance to be in the range of last years' to which we are fully committed, as Paco mentioned in his final remarks. However, just to give you a flavor of what has happened this quarter, we had CapEx levels of EUR 204 million versus EUR 236 million, which little bit demonstrates what also the comment that we have been making about a strict CapEx policy and reviewing our investments.

There are no further questions from the conference call at this time. So I'll hand back to the management team. Thank you.

Well, thank you very much for having joined us today. And as usual, the IR team remains at your disposal for any further questions. And we hope you have a very good evening.

Okay. Thank you very much.

Thank you.