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

Well, good evening and thank you for joining Gestamp First Half 2026 Results Presentation. Thank you for joining, especially in this very busy evening for you. This call will be led by our Executive Chairman, Mr. Francisco Riberas. I'm delighted to join him today and honored to participate in my first earnings call as CFO of the company. As usual, let me refer you to the disclaimer on the Slide #2 of this presentation. And also as usual, at the end of the call, we will open the floor for a Q&A session. Now let me hand over the call to our Executive Chairman.

Okay. Good afternoon, and thanks for attending our call in which we will be presenting our first half results. First of all, again, in a very challenging scenario, Gestamp has been able to deliver a very solid result in the first half of 2026. With auto manufacturing decreasing from H1 2025, especially in China, our revenues at FX constant have increased by 2.9% in Q2 versus Q2 2025 and by 1.3% in H1 versus H1 2025. During the first half of the year, our EBITDA has reached EUR 651 million, improving our EBITDA margin and reaching, excluding Phoenix Plan cost, an 11.6% margin in Q2 and an 11.2% in H1, better than in H1 2025. And our free cash flow generation in the period has reached, excluding Phoenix, EUR 86 million with a very solid cash flow conversion. So strong results, which is supporting our full year '26 visibility. If we go to the market and as already stated, the light vehicle production has suffered during this first half of the year. In fact, in H1 2026, in Gestamp footprint, the light vehicle manufacturing has reached 41.1 million units, which is 0.9% lower than previous year and close to the production level in H1 2019 before COVID. During last month, the main negative impact has been in China with minus 5.3% reduction compared with H1 2025. China manufacturing in this half of the year has been very much impacted by weak domestic demand, which has been partially offset by increasing exports. So moving to Slide 6. In a market declining by 0.9%, Gestamp revenues at FX constant have been able to improve by 1.3%, which means an outperformance of 2.1 percentage points versus the market. In Western Europe and North America, we have registered a moderate outperformance. In Eastern Europe, in line with previous year, we have a relevant outperformance of 9.3 percentage points, while some underperformance in Mercosur due to some specific programs and also a limited underperformance in Asia, driven by China, but with a very solid performance in other Asian countries such as India. So very solid revenues in H1 of close to EUR 5.8 billion, which has been supported by a healthy organic growth in our auto sales outperforming the market and also a good recovery of sales in Gescrap, but still impacted by FX. In this sense, in H1 2026, our revenues have been impacted negatively by EUR 157 million. And in the second half, we expect that impact to be lower. Gestamp is very focused in enhancing our profitability in a market with low volumes. In H1 2026, our EBITDA margin in the auto business has reached 11.4%, with lower sales than in H1 2025. Also a relevant margin increase from H1 2024 EBITDA margin of 10.8% and the same EBITDA margin as our record H1 in 2023 with EUR 445 million lower sales. And we have been able to deliver those good results due to all efforts that we are deploying in different kind of cost reduction initiatives, implementing flexibility and restructuring measures with all kind of constructive customer negotiations and with a very good execution on our Phoenix Plan in North America. So H1 results, which is showing that Gestamp is on track to reach our full year '26 guidance of more than 11.9% EBITDA margin. In terms of Phoenix, we are already in the third and last year of our plan. Even if the market environment in terms of volumes is worse than the one considered when we elaborated the plan, we are clearly on track to achieve the target of more than 10% EBITDA margin in full year 2026. In fact, in H1 2026, light vehicle production volumes in North America have been flat compared with previous year with a negative performance in the Mexican market. In H1 2026, we have incurred in around 50% of the total extraordinary impact forecasted for the year. And in Q2, we have been able to improve our EBITDA margin from Q1 and already reaching 8.8%. In Gescrap, following a difficult second half of 2025, during H1, Gescrap performance has improved substantially. Part of this improvement comes from scrap prices recovery in 2026 in the different global markets, but also thanks to an increase of the amount of tonnes processed. Gescrap revenues in Q2 have reached EUR 161 million, 2.4% increase from Q1 revenues. And in terms of profitability, EBIT in Q2 reaching already EUR 12.2 million, a 7.6% EBIT margin, improving the 6.4% margin in Q1. So very solid figures in H1, which provide also a very good visibility to being able to achieve full year target. And now with this, now I hand it over to Ignacio.

Thank you, Paco. Well, as we have previously explained, this first half have been affected by a negative ForEx evolution, particularly during Q1 and also a tough comparison base coming from second Q 2025, which was particularly strong. We have achieved revenues of EUR 5.794 billion and EBITDA of EUR 640 million, leading to a margin of 11.1%. This is a 10 bps improvement on a reported basis. Excluding the EUR 11 million of Phoenix cost, EBITDA will be standing at EUR 651 million, which is pretty much flat to last year and with a profitability of 11.2%, already improving 10 bps again and providing good visibility to achieve the guidance provided for full year. EBIT has reached EUR 265 million, showing some margin deterioration year-on-year, explained by the ForEx impact and the write-downs booked in half 1 -- sorry, booked in Q1, as we will recall later. Net profit for the first half is back to above EUR 100 million, reaching EUR 110 million and free cash flow generation has reached EUR 65 million or EUR 86 million if excluding extraordinary Phoenix costs. As a result, net debt is falling below EUR 2 billion, standing at EUR 1.771 billion. As said, and turning into Slide #13, this half 1 has been affected by 2 extraordinary impacts at net profit level, the EUR 15 million asset write-down related to the EV realignment strategy that the group started in fourth quarter last year and EUR 23 million positive impact coming from IFRS 9 accounting on our financial expenses related to the extension of the EUR 1.7 billion syndicated loan facility agreed in January this year. This has a net EUR 6 million impact at net profit and -- but excluding these extraordinary costs, we will have a net profit of around EUR 104 million, which is more in line with the net profit levels achieved in previous years and representing a 40% increase on a year-on-year basis. Looking at the different regions on Slide 14, the key contributors to revenue performance this first half has been Eastern Europe, Mercosur and Gescrap, with EBITDA also supported by our North America performance. In Western Europe, revenue, excluding a negative ForEx evolution from U.K. would have dropped by less than the 1.3% we are reporting. Performance in the region is pretty much affected by a weak market momentum in key countries such as Germany or France. And within this context, Gestamp continues to be focused on cost control and improving efficiency to offset the limited revenue growth while preserving margins. And as a result, we are reaching a profitability, which is standing in those levels of 10%, which is only 30 bps below last year, which is a good proof of the success of our strategy. Eastern Europe revenues remain a solid region for Gestamp with flat organic growth and preserving best-in-class profitability with an EBITDA margin above 15%. Not much to add in North America, as Paco has already given you the details on Phoenix. And as you should be already aware, improvement in this region is one of our key levers to deliver on our guidance for the year. As for Mercosur, revenues have grown 2% with Brazil growing above, but Argentina a bit weaker. And thanks to the restructuring done last year, as we said, and the improved operating leverage in Brazil and thanks also to some -- to an easier comparison base in Brazil, profitability is back to more normalized levels in the region of 13%. Lastly, in the auto business in Asia, revenues performance has been affected by a weak China market and ForEx essentially. Markets like India are conversely growing above almost, pretty much a double digit. And despite the lack of revenue growth and similar to what we are doing in other regions, we are continuing to be focused on cost competitiveness. And to this end, we have implemented different measures in this region to remain with a profitability above 14%, which is the second best-in-class for the group despite the soft market momentum. And lastly, on Gescrap, as we have previously seen, this first half has been affected by the integration of [indiscernible] coupled with sustained price increases as well as some volume growth, as our Chairman has previously explained. And all this has led to double-digit revenue and EBITDA growth, which shows good visibility to achieve the target we have given for full year. So overall, half 1 delivered very solid results, demonstrating the company's ability to remain cost competitive and preserve a strong financial position despite a challenging market environment. Moving to our free cash flow generation on Slide 15. Net debt has dropped by almost EUR 50 million, thanks to a EUR 65 million of free cash flow generation in the quarter -- sorry, in the period. Despite limited EBITDA growth, lower CapEx and a positive working capital evolution after some extraordinary impact, a negative impact that we have during Q1, all this has allowed Gestamp to deliver a very solid free cash flow generation in the period. Excluding the EUR 20 million of Phoenix cost invested in the period, which more or less are 50% OpEx and 50% CapEx, free cash flow would have amounted to EUR 86 million. It is important to say that group operating cash flow conversion has stood at 36% in the first half, which, as I said, is the result of also a lower CapEx invested on absolute terms, which is providing good visibility to achieve the target and our market commitments of being less capital intensive going forward. And lastly, net debt [indiscernible] has stood at EUR 1.771 billion, the lowest net debt figure for our first half and below full year 2025, as we have said previously. This reduction in terms of net debt despite the limited EBITDA growth has driven us to report a leverage of 1.4, a healthy balance sheet, which gives us flexibility and optionality within a market -- with a market of limited visibility as of today. This is all on my side, and I will hand over the call to our Chairman.

Thank you, Ana. So assuming the latest S&P forecast for full year 2026, this is now showing a manufacturing of 91.1 million light vehicles, which is representing a decrease of 2.1% compared with full year 2025. In fact, since February, the market context has been continuously worsening, impacted by different geopolitical issues, as you know. And in terms of geographies, the main impact is coming from China, where now we are assuming 31.3 million vehicles manufactured this year, which is 1.1 million less than the volumes that we were expecting some months ago. So moving to Slide #19. In a market which is not growing, globally Gestamp is clearly adapting a differentiated geographical strategy for the future. So that means that in the low-growth market, we are very much focused in improving profitability and rightsizing and pushing for reducing fixed expenses and also increasing flexibility. But in the case of high-growing regions, we are still adding capacity to capture growth and leveraging our technology advantages, increasing customer diversification and also building strong local teams. Good examples are Brazil, where light vehicle manufacturing is expected to grow from 2.5 million units in 2025 to 3.1 million in 2029. And in Brazil, we have just opened a new plant in Piracicaba or in India, where light vehicle manufacturing is expected to grow from 6.1 million units in 2025 to 7.4 million in 2029. And in September, we will be opening our fifth plant. So moving to Slide 20. And following H1 solid results and the expected positive dynamics of our operations for the rest of the year, we are reiterating our guidance for full year 2026, which means that we are expecting that our group EBITDA margin will be more than 11.7% in full year 2026 and also it will be more in terms of our auto business of margin of more than 11.9% and in the case of Gescrap, an EBITDA margin of more than 7.4%. And also that we are going to be able to have a group operating cash flow conversion in the range of 35% at the end of 2026. So with this, just to conclude, basically, very solid set of results in H1, which is giving us a very good visibility to achieve the target for the full year 2026 guidance. Phoenix Plan is still a very important priority for us, and we are in the last year of the plan, and we have a very good visibility to achieve the target of more than 10% EBITDA margin. And of course, we, due to our profitability and the efforts in our -- looking for our financial, we have a very solid financial position, which is giving us an optionality to capture future opportunities. And now with this, we are open to your questions. Thank you.

[Operator Instructions] Our first question comes from Mira Wiegratz from Deutsche Bank.

This is Mira Wiegratz from Deutsche Bank. So I have two, if I may. The first one would be as North American EBITDA margin excluding Phoenix improved sequentially from 7.1% in Q1 to 8.8% in Q2, could you bridge that 170 basis points improvement and indicate how much came from structural cost savings, customer negotiation mix and normal seasonality? And then also regarding North America, the Q2 margin at 8.8%, what needs to improve in H2 to deliver the above 10% full year target? And how much of that step-up is already secured through completed Phoenix actions?

Okay. Thank you for your questions. And then if I understood well, it's true that we have improved our EBITDA margin in North American operations from 7.1% in the first quarter to 8.8% in the second one. Of course, it's very difficult now to provide you with a clear bridge. But what is true is that most of this improvement is coming from very -- actions which are very sustainable. It's true that during the last 2 years, we have all different kind of negotiations with customers, with suppliers. We have been able also to do some restructuring of operations. We have been working also with our labor force. But to be honest, right now, most of the -- all the achievements that we have been able to do in the last 2 years now are sustainable. And during the second quarter, we had quite reasonable volumes in some plants which are performing well and some of the plants that still have lower margins are already moving to a better margin. So this is basically what is happening, something which is sustainable and it's not any kind of one-off. So that's why we feel very comfortable in order to be able to reach this 10%. Because basically, all the volumes, all the orders that we have are already booked. We know that we are in control of all the different expenses. And of course, always anything can happen, but we are quite convinced that we are going to be able to reach this more than 10% EBITDA margin by the end of the year.

Our next question comes from Robert Jackson from Santander.

I've got a few questions, so I'll ask them one by one. So starting off with Brazil or Mercosur. Brazil has done very well or Mercosur has done very well. But what about the persistent risks or weakness in Argentina? How can that have an effect in the coming quarters or semesters? That would be my first question.

Okay. So if we focus in Mercosur, it's true that when we refer to the figures of Mercosur, we are including Brazil, which is our main area -- main focus in the area, but also we have some operations in Argentina. In Argentina, during the first half of the year, our volumes have been lower than the ones expected because we had a large program in Argentina, which is now phasing out, and we are already launching the new successor vehicle. So everything is more or less under control, but it's true that volumes in Argentina during the first half of the year have been lower than expected. To be honest, after following difficult years, we now have a little bit better expectations for Argentina, not only for this new program, but for other programs of some of our customers.

Okay. Second question is related to India. You mentioned that you're going to ramp up your fifth plant in India. Can you give us more details in terms of the timing, how long it will take and any sort of -- how relevant it is in terms of your setup in India?